External Sector

External Trade

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 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 FY2019-20

• 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 FY2019-20.
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

Both imports and exports contracted but imports contracted more.

• Trade balance with China and the US improved as imports slowed.

India-China Trade:

Trade between India and China from January to December 2020 stood at $77.67 billion. Lower than the $85.47 billion traded between the countries in the 2019.
In 2020 China became India’s number one trade partner, with two-way trade at $77 billion.

Indo-US Trade:

India imports $58.6 billion; and exports $87.4 billion. India has trade surplus with USA of $28.8 billion in 2019.
India is 9th largest goods trading partner to USA with $92.0 billion in total (two way) goods trade during 2019.

• 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 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.

Service sector

In 2020-21, the service sector is estimated to contract by 8.8% (with trade and hospitality contracting the most (21.4%)) as compared to 5.5% growth in 2019-20. Software services were the only sub- sector with positive growth (3.6%) in the period of April-September 2020.
While the pandemic led to a global slowdown in trade, the Indian service sector export remained resilient. The net services export receipts in first Service sector
In 2020-21, the service sector is estimated to contract by 8.8% (with trade and hospitality contracting the most (21.4%)) as compared to 5.5% growth in 2019-20.
Software services was the only sub- sector with positive growth (3.6%) in the period of April-September 2020.
While the pandemic led to a global slowdown in trade, the Indian service sector export remained resilient. The net services export receipts in first half of 2020-21 was USD 41.67 billion, which is 3% higher than the service export receipts in first half of 2019-20 (USD 40.47 billion).half of 2020-21 was USD 41.67 billion, which is 3% higher than the service export receipts in first half of 2019-20 (USD 40.47 billion).