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Home Economy

Economic Survey-2021: External Sector

January 30, 2021
in Economy
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Economic Survey-2021: Theme of the survey
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  • COVID-19 pandemic led to a sharp decline in global trade, lower commodity prices and tighter external financing conditions with implications for current account balances and currencies of different countries
  • India’s forex reserves at an all-time high of US$ 586.1 billion as on January 08, 2021, covering about 18 months worth of imports

  • India experiencing a Current Account Surplus along with robust capital inflows leading to a BoP surplus since Q4 of FY 2019-20
    • Balance on the capital account is buttressed by robust FDI and FPI inflows:
      • Net FDI inflows of US$ 27.5 billion during April-October, 2020: 14.8% higher as compared to first seven months of FY 2019-20
      • Net FPI inflows of US$ 28.5 billion during April-December, 2020 as against US$ 12.3 billion in corresponding period of last year
    • In H1: FY21, steep contraction in merchandise imports and lower outgo for travel services led to:
      • Sharper fall in current payments (by 30.8%) than current receipts (15.1%)
      • Current Account Surplus of US$ 34.7 billion (3.1% of GDP)
  • India to end with an Annual Current Account Surplus after a period of 17 years
  • India’s merchandise trade deficit was lower at US$ 57.5 billion in April-December, 2020 as compared to US$ 125.9 billion in the corresponding period last year
  • In April-December, 2020, merchandise exports contracted by 15.7% to US$ 200.8 billion from US$ 238.3 billion in April-December, 2019:
    • Petroleum, Oil and Lubricants (POL) exports have contributed negatively to export performance during the period under review
    • Non-POL exports turned positive and helped in improving export performance in Q3 of 2020-21
    • Within Non-POL exports, agriculture & allied products, drugs & pharmaceutical and ores & minerals recorded expansion
  • Total merchandise imports declined by (-) 29.1% to US$ 258.3 billion during April-December, 2020 from US$ 364.2 billion during the same period last year:
    • Sharp decline in POL imports pulled down the overall import growth
      • Imports contracted sharply in Q1 of 2020-21; the pace of contraction eased in subsequent quarters, due to the accelerated positive growth in Gold and Silver imports and narrowing contraction in non-POL, non-Gold & non-Silver imports
      • Fertilizers, vegetable oil, drugs & pharmaceuticals and computer hardware & peripherals have contributed positively to the growth of non-POL, non-Gold & non-Silver imports
  • Trade balance with China and the US improved as imports slowed           
  • Net services receipts amounting to US$ 41.7 billion remained stable in April-September 2020 as compared with US$ 40.5 billion in corresponding period a year ago.           
  • Resilience of the services sector was primarily driven by software services, which accounted for 49% of total services exports           
  • Net private transfer receipts, mainly representing remittances by Indians employed overseas, totaling US$ 35.8 billion in H1: FY21 declined by 6.7% over the corresponding period of previous year      
  • At end-September 2020, India’s external debt was placed at US$ 556.2 billion – a decrease of US$ 2.0 billion (0.4%) as compared to end-March 2020.
  • Improvement in debt vulnerability indicators:
    • Ratio of forex reserves to total and short-term debt (original and residual)
    • Ratio of short-term debt (original maturity) to the total stock of external debt.
    • Debt service ratio (principal repayment plus interest payment) increased to 9.7% as at end-September 2020, compared to 6.5% as at end-March 2020
  • Rupee appreciation/depreciation:
    • In terms of 6-currency nominal effective exchange rate (NEER) (trade-based weights), Rupee depreciated by 4.1% in December 2020 over March 2020; appreciated by 2.9% in terms of real effective exchange rate (REER)
    • In terms of 36-currency NEER (trade-based weights), Rupee depreciated by 2.9% in December 2020 over March 2020; appreciated by 2.2% in terms of REER
    • RBI’s interventions in forex markets ensured financial stability and orderly conditions, controlling the volatility and one-sided appreciation of the Rupee

Initiatives undertaken to promote exports:

    • Production Linked Incentive (PLI) Scheme
    • Remission of Duties and Taxes on Exported Products (RoDTEP)
    • Improvement in logistics infrastructure and digital initiatives
Source: PIB & Economic Survey
Tags: PIBPrelimsSurvey

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