INSUBCONTINENT EXCLUSIVE:
Even as the jury is not out on the exact impact of the coronavirus on the economy this year, there could be a positive news on the external
India's current account deficit could turn positive this fiscal with crude prices set to fall below $20 a barrel
This could help rupee get some cushion from volatile portfolio flows during the year, said a report by State Bank of India Research team
which has forecast economic growth at 1.1 per cent for the year.
The general contraction in economic activity throughout the world as a
fall-out of the coronavirus pandemic is expected to have a toll on both India's exports and imports
Exports are expected to contract by 16 per cent at $265 billion resulting in an output loss of $50 billion
But imports are expected to fall by 25 per cent at $ 350 billion, thanks to falling crude prices
Crude alone accounts for over 20 per cent of India's merchandise imports
Assuming an average crude price of $35 a barrel in FY'21, as assumed by RBI's MPC, then given the low economic activity in April, the
country's crude import bill could be $53 billion, according to SBI estimates
If oil goes below $20 a barrel then the import bill could go down even further, the report said.
SBI's research team has factored net
services exports at $75 billion and remittances by the Indian diaspora at $60 billion in FY21
" Taking all this into account, we expect a Current Account Surplus of 0.7% of GDP at $19 bn in FY'21" said S K Ghosh, group chief economist
" Overall we also expect a BoP surplus of $67 billion
Thus, the Rupee will get some cushion from the volatile portfolio outflows and Rupee can have a definitive appreciative bias in current
fiscal" he said.
India could also witness stable FDI if it is able to handle COVID outbreak efficiently and minimise losses, the SBI report
But a recent report by global trade body UNCTAD estimate that economic impact of Covid would lead to downward revision of earnings of top
multinational firms which in turn could lower FDI by 30 tp 40 per cent in FY'21
