Rupee, where to?

A news item caught my attention recently, which seem to have escaped all the mainstream media. It appears that last quarter, India might have turned into a current account surplus country from a current account deficit country. The biggest reason for Rupee's fall in recent times has been the huge current account deficit, which was threatening to go close to 5% of GDP. From there, moving to current account surplus will be quite a feat, which India seems to have achieved.

To start with, let us look at trade deficit numbers for various months of last quarter.

Sep 2013 - 6.7 billion USD

Aug 2013 - 10.9 billion USD

Jul 2013 - 12.27 billion USD

Total trade deficit for the quarter ~ 30 billion USD

Indian services have always been surplus in the range of 5-6 billion USD on a monthly basis. That gives us approximately 15-18 billion dollars from services export for the quarter. If we reduce this number, we get a deficit of about 12-15 billion USD.

India is the largest recipient of inward remittances. Indians staying abroad sent approx. 70 billion dollars to the home country last year. That gives us a rate of almost 17-18 billion USD quarterly. If we add that number to the deficit of 12-15 billion USD, we get a net positive number. So, looks like India has finally turned into a current account surplus country. The exports have also grown by double digits in percentage terms for all the three months. If this is sustained, the days of Rupee depreciation are over.

Corrigendum: The calculation above does not take into account outward remittances. Outward remittances are almost to the tune of 35-36 billion USD per annum. So, net inward remittances are approx. 36 billion USD p.a. or 3 billion USD p.m.. So, from the services export and net inward remittances, we get an amount of approximately 8.5 billion USD per month. That will give us a quarterly income of around 25 billion USD. That still leaves us with an current account deficit, but with a much smaller number of 5 billion USD. Even if this rate is retained for next 2 quarters, our current account deficit for the year will be less than 40 billion USD, out of which 20 billion will be done in the 1st quarter. and remaining 15-20 coming in the last 3 quarters. 40 billion USD is just 2% of Indian GDP of 2 Trillion, which is a far better number compared to the 5% that we had. And if the same rate continues in the next year, our current account deficit should be less than 20 billion USD or less than 1% of the GDP .