India’s current account may show a surplus for several years this year, with economists saying a sharp decline in domestic demand for investment and consumption goods. The fall in crude and commodity prices and lower demand for them are also contributing to the decline in imports. In FY21, the surplus is expected to be $ 19–20 billion, or about 0.7% of GDP.

India’s current account surplus was last in FY07.The current account deficit has traditionally been regarded as a weakness but experts see a bigger problem in a surplus as it stems from demand destruction due to the economic slump caused by the Covid-19 pandemic and the lockdown.

SBI group chief economic adviser Soumya Kanti Ghosh expects a decline of 20% in FY21 in non-oil, non-gold imports. These are generally regarded as a measure of domestic demand and strength of the economy. The 52.18% decline in such imports in April also signals a sharp fall in investment activity, given that India typically imports a substantial amount of capital and project goods.

‘Indicative of slowdown’
“We maintain hat India will witness a current account surplus in FY21 and a large BoP (balance of payments) surplus too,” said Ghosh. HDFC Bank chief economist Abheek Barua estimates the current account surplus at 0.3-0.7% of GDP this year. “It is cause for concern, in the sense it helps by default, but the factors that underlie the switch from persistent negative to positive is not just fall in oil prices,” he said. “It shows fundamental weakness of the economy that is responsible for it…This is indicative of slowdown in the economy.”
Barclays chief India economist Rahul Bajoria expects a $20 billion current account surplus. That’s “an unwelcome development because the surplus will be driven almost entirely by the lockdown of the economy to contain the Covid-19 outbreak, and helped by the plunge in oil prices,” he said