India's current account balance deteriorated from a surplus of 0.1% of GDP in Q4 FY20 to a deficit of 1.0% in Q4 FY21. Net balance of payments registered a mild surplus of USD 3.4 bn in Q4 FY21, lower vis-à-vis the surplus of USD 18.8 bn seen in Q4 FY20.

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Jun 30, 2021

India Q4 FY21 BoP: Gradual normalization in store

India’s current account balance swung to a deficit in Q4 FY21 from a surplus in Q4 FY20 with accompanying moderation in the BoP surplus. The combination of gradual normalization in economic activity along with recent run up in commodity prices would widen the current account deficit in FY22 after a momentary break in Q1 on account of the second wave of COVID. We estimate India’s current account to revert to a deficit of 1.0% of GDP (USD 30 bn) in FY22 from a surplus of 0.9% (USD 24 bn) in FY21. The BoP surplus is expected to moderate towards USD 40 bn in FY22 from a robust level of USD 87 bn in FY21. The lower surplus on BoP would reduce the extent of RBI’s FX intervention in FY22 compared to FY21 and should pave way for INR movement in tandem with broader EMFX.