Page 478 - ES 2020-21_Volume-1-2 [28-01-21]

External Sector 105

India has the largest number of migrants living abroad (17.5 million) and was the top recipient
of remittances of US$ 83.3 billion in 2019. However, as per World Bank, remittance flows to
low and middle-income countries (LMICs) are estimated to decline in 2020, by around 7.2
per cent. For India, remittances are projected to fall by about 8.9 per cent to US$ 76 billion
in 2020. Net outgo due to cross border income payments associated with the production and
ownership of financial and other non-produced assets, which had been moving upward since
2011-12, declined in 2019-20. In H1: FY 2020-21, there was a net outflow of primary income
of US$ 16.8 billion as against outflow of US$14.7 billion in corresponding period a year ago.

Current Account of BOP
3.19 India’s current account deficit averaged 2.2 per cent of GDP in the last 10 years. Reversing
this trend, current account balance turned into surplus (0.1 per cent of GDP) in Q4: FY 2019-20
on the back of, among others, a lower trade deficit and a sharp rise in net invisible receipts. This
quarterly surplus was registered after a gap of 13 years after Q4: FY 2006-07. This has been
followed by successive current account surpluses in Q1 and Q2 of FY 2020-21. In H1: FY 2020-
21, steep contraction in merchandise imports and lower outgo for travel services led to a sharper
fall in current payments (by 30.8 per cent) than current receipts (15.1 per cent) – leading to a
current account surplus of US$ 34.7 billion (3.1 per cent of GDP) (Figure 13). Given the trend
in imports of both goods and services, it is expected that India will end with an annual current
account surplus of atleast 2 per cent of GDP – after a period of 17 years.

Figure 13: Composition of Current Account Balance
Net Merchandise Trade Balance Net Services
Net Transfers Net Income
60 CAB to GDP ratio (RHS) 4
3
40
2
20 1
US$ Billion 0 0 Per cent of GDP

-20 -1
-2
-40
-3
-60 -4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2018-19 2019-20 2020-21
Source: RBI

Capital/ Financial account of BOP
3.20 Net capital flows was modest in H1: FY 2020-21 at US$ 16.5 billion, as against US$ 40.0
billion in HI: FY 2019-20, mainly accounted for by net repayments of external commercial
borrowings (ECBs) and decline in banking capital. However, there is an increase in net foreign
investment to US$ 31.4 billion in H1: FY 2020-21, vis-à-vis US$ 28.7 billion in corresponding
period a year ago.

3.21 During April-October, 2020, net FDI flows recorded an inflow of US$ 27.5 billion, 14.8 per
cent higher as compared to first seven months of 2019-20, an endorsement of India’s status as a
preferred investment destination amongst the global investors (Figure 14). As far as sector-wise
FDI is concerned, computer software and hardware attracted the highest FDI equity inflows of