With ₹4200 crore, India’s current account
balance (CAB) turned into positive in Q4, FY20, which is first time in recent
history of past 10 years.
As India’s import bill was high during first
quarter of FY20, the CAD to GDP ratio had reached close to 3%.
However, as the trade deficit reduced gradually,
the current account balance improved to 0.51% of GDP in Q3 and then 0.1% in Q4.
Improved in trade surplus in services also
helped in reducing current account deficit.
On the service side, trade surplus in
telecommunication and IT services has increased by average 8% to $86 billion in
FY20.
We believe that weak domestic currency, lower
oil price, and India’s effort to lower import bills especially with China will
help in maintaining lower current account deficit.
Considering these factors, we are expecting the
CAD to GDP ratio at a lower level of 0.5% in FY21.
From currency management perspective, a lower
current account deficit will give more room for RBI in controlling volatility
in exchange rate.
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