What does the positive surplus on the current account mean for India?

On a day when growth continued to falter and borrowings were rising, there was some positive news flow on the current account front. India recorded the historically highest ever current account surplus of $19.8 billion for the Jun-20 quarter.

It may be recollected that in the Mar-20 quarter, India had reported a current account surplus of $600 million after a gap of almost 13 years. But the surplus of this magnitude of $19.8 billion in the June quarter was beyond all possible imagination.

This current account surplus was essentially supported by an improvement in the overall trade surplus during this period. Even as oil imports declined sharply, India saw robust growth in exports the exports of IT and telecom services.

During the quarter, the net inflows from foreign remittances were comparatively lower as was the flows by way of FPI and FDI investments. That was largely along expected lines on as the Coronavirus pandemic had dampened sentiments on the investment front.

Prima facie, this is a major positive on two fronts. Firstly, this is likely to keep the Indian rupee strong even in the face of a strengthening US dollar. Secondly, it is likely to force global rating agencies to look at the Indian external ratings more favourably.