CURRENT ACCOUNT SURPLUS

CURRENT ACCOUNT SURPLUS

Subject : Economics

Context : The current account surplus moderated to $15.5 billion (2.4 per cent of GDP) in the quarter ended September of 2020-21 from $19.2 billion (3.8 per cent of GDP) in the first quarter this fiscal.

Concept :

• The narrowing of the current account surplus in Q2 of FY21 was on account of a rise in the merchandise trade deficit to $14.8 billion from $10.8 billion in the preceding quarter, the Reserve Bank of India (RBI) said.
• It said the net services receipts increased both sequentially and on a year-on-year (y-o-y) basis, primarily on the back of higher net earnings from computer services.
• Private transfer receipts, mainly representing remittances by Indians employed overseas, declined on a y-o-y basis but improved sequentially by 12 per cent to $20.4 billion in Q2FY21.

Current Account Surplus

• A current account surplus is a positive current account balance, indicating that a nation is a net lender to the rest of the world.
• The current account measures a country’s imports and exports of goods and services over a defined period of time, in addition to earnings from cross-border investments, and transfer payments.
• Exports, earnings on investments abroad, and incoming transfer payments (aid and remittances) are recorded as credits; imports, foreign investors’ earnings on investments in the country, and outgoing transfer payments are recorded as debits.
• When credits exceed debits, the country enjoys a current account surplus, meaning that the rest of the world is in effect borrowing from it.

Balance of Payments

• The balance of payments include both the current account and capital account.
• The current account includes a nation’s net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.
• The capital account consists of a nation’s transactions in financial instruments and central bank reserves.
• The sum of all transactions recorded in the balance of payments should be zero; however, exchange rate fluctuations and differences in accounting practices may hinder this in practice.