India’s hunger for import energy may have cost India a chance to swing the current account into surplus in the January to March 2020 quarter, for the 1st time in 12 years as well. The govt had expected that a sharper fall in India’s imports in the last quarter of the last financial year 2019-2020 would help generate a current account surplus for India. The dramatic fall in trade activity had been seen both the imports and the exports falling substantially, as bringing India this once-in-a-blue-moon opportunity. Although, India imported a huge amount of crude oil in March to take the advantage of low crude oil prices and to fill strategic reserves to full capacity, that preventing imports from falling in line with the suppressed domestic economic activity as well.
“Oil imports rose by 3.7 percent to USD 33.7 billion in Q4 FY20 from USD 32.5 billion in the same period a year ago, partly on account of a rise in the volume of the oil imports in March 2020 to take the advantage of subdued international crude oil prices as well,” as Aditi Nayar, the Principal Economist, ICRA, told. The merchandise trade deficit narrowed only slightly to around $34.8 billion in the Q4FY20 from around $35.8 billion in Q4FY19, also Aditi Nayar added. Additionally, ICRA expects a mild increase in the current account deficit to $5.5-6.5 billion or 0.8 percent of GDP in Q4 FY20, from $4.6 billion in Q4 FY19, Aditi Nayar further said.
The govt’s macroeconomic report has expected that India’s current account balance might have generated a small surplus in the first quarter of FY 2020-21 too, that supported partially by low levels of external debt servicing. The report told that India’s external sector has been acquired resilience manifested in improvement in the Balance of Payments (i.e. BoP import) position despite being challenged by net FPI outflows for some time as well. If the country’s current account turns positive, it would be for the first time in the last 12 years. Sameer Narang, the Chief Economist, of Bank of Baroda also told that the trade deficit in Q4 was just around $1 billion lower than Q4 of the last year whenever CAD was $4.6 billion, although it is very likely that CAD will be positive in Q1 FY21 as well.