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Critically analyse the current account surplus that India posted in the first two quarters of the calendar year 2020.

By Srirangam Sriram, Sriram's IAS, New Delhi.
The current account of a country includes all external financial transactions excluding loans and investment. It means it includes trade in goods and services and others like remittances. Almost as a norm, India had a current account deficit for many decades due to its economic growth needing energy imports; and also because India is not a global export powerhouse.

But, India's current account surplus increased to 19.8billionor3.9percentofGDPfortheJunequarterasmerchandiseimportsdeclinedamidtheCOVID19pandemic.Thecountryscurrentaccountsurplushadcomeat0.6 billion or 0.1 per cent of GDP in the preceding March quarter.

The surplus in the current account was on account of a sharp contraction in the trade deficit to 10billionduetosteeperdeclineinmerchandiseimportsrelativetoexportsonayearonyearbasis.Thecurrentaccountbalancesareconsideredasanimportantindicatorofacountrysexternalsector.Evenasmerchandiseexportsfellduetogloballockdown,netservicesreceiptsremainedstableprimarilyonthebackofnetearningsfromcomputerservices.Privatetransferreceipts,mainlyrepresentingremittancesbyIndiansemployedoverseas,amountedto18.2 billion which is a decline of 8.7 per cent from their level a year ago.

Career Guidance Current account surplus is good if a robust and globally competitive economy exports more than it imports. But in the case of India, we need to import for making our exports competitive. Imports are also a sign of growth. Therefore, surplus in the case of India need not be welcomed.
Published date : 15 Dec 2020 12:47PM

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