InvestorQ : InvestorQ-Ask,Answer & Share All About Finance!
Neelam Naik made post

What does it mean when the current account turns into a surplus after a gap of nearly 13 years?

user profile image
Priyanka N answered.
1 month ago

After a gap of a full 13 years and for the first time since March 2007, the Indian government reported a surplus of $0.6 billion on the current accounting for nearly 0.1% of the GDP. The amount may be small but the fact that India has moved into current account surplus after 13 years of CAD shows that there is something to celebrate on the macro front.

Here is why India reported a surplus. India's external position improved in the fourth quarter as a surge in private transfers and income from software services improved. Private remittances were also robust and that was combined with lower trade deficit due to weak oil prices and all these factors contributed to turning into current account surplus.

Contrary to popular perception, the deficit in the crude account was actually higher by 9% during the Mar-20 quarter. The real reason was the 9% rise in software income at $21.1 billion as well as an impressive 14% spurt in inward remittances to $18.6 billion. It was more of the invisibles that spurred the current account surplus rather than merchandise shifts.

However, economists have consistently warned that such a surplus cannot be taken for granted and may not really last beyond this quarter. As global growth picks up and oil prices harden, Indian current account position could be back to a deficit situation. The global slowdown is also likely to hit software revenues, tech spending and inward remittances.