It looks like happy days are here after 13 years for the Indian current account. For the March 2020 quarter, India reported current account surplus of $0.60 billion or just about 0.1% of GDP for the first time since 2007. The last time India had reported a CAS was in the March 2007 quarter. But how did India manage to turn around from deficit to surplus?

The main reason was the lower trade deficit, which is the excess of the merchandise imports over merchandise exports. For FY20, the trade deficit was 15% lower than the previous year. The average trade deficit compressed from a high of $15 billion per month to as low as $6 billion per month. The COVID shock also led to an overall compression in world trade.

But, more than the trade deficit, which is still ephemeral, the invisibles played a much bigger part in shifting India towards current account surplus. Let us quickly look at what are invisibles. Invisibles are the non-merchandise flow items. The first big invisibles boost came from the sharp spike in software service exports and fees which spiked to $17 billion.

The second area of invisible that was robust in the March 2020 quarter was remittances from abroad. Most NRI still prefer the higher yields available in India. Despite global slowdown in growth, NRIs continued to sustain their faith in the Indian economy and the attractive rates offered by Indian banks with limited risk was also the cutting edge.