India likely to see Current Account Surplus in FY21: CEA KV Subramanian

India is likely to record a current account surplus during this financial year on moderated imports due to a drop in demand on account of the Covid-19 pandemic, according to chief economic adviser KV Subramanian.

The CEA said growth in employment-intensive sectors and more formalisation in the economy are driving the government’s reform agenda.

“… this year we may be having a current account surplus,” Subramanian said during a virtual conference hosted by the Confederation of Indian Industry on Monday. “We had almost $20 billion current account surplus in Q1, $19.8 billion, to be precise. Even if, let’s say, subsequent quarters do not see that kind of performance, we still will likely have a current account surplus.”


The pandemic-induced crisis was different from a typical emerging economy crisis, where demand outstrips supply, resulting in imports sharply outpacing exports, an accelerating current account deficit and inflation, the CEA said, referring to 2013, when India’s CAD touched 6% of GDP.

“Compared to a normal emerging-market crisis, which is because of overheating of the economy, the Covid crisis is one of underheating the economy,” Subramanian said.

Reform agenda
The two key themes underlying the government’s reform agenda so far have been to change India's macroeconomic configuration towards growth in employment-intensive sectors and more formalisation in the economy, according to Subramanian.

While robust job creation and wage increases would drive sustainable growth, formalisation of employment would make the economy more resilient to future crises, he said.

The CEA was referring to changes in laws and regulations related to manufacturing, agriculture, labour and micro, small and medium enterprises (MSMEs).

“If you take the agriculture law changes, the production-linked incentive scheme, the changes in MSME definitions together, it is an attempt to change the macroeconomic configuration of the economy towards those sectors which are more employment intensive, especially the primary and secondary sectors of agriculture and manufacturing,” Subramanian said.

“All these are ways to enable economies of scale, especially among MSMEs, which will help to create jobs and thereby demand in the economy.”

Sustained growth would only come from robust job creation, which would be accompanied by wage increases, as against the jobless growth that India saw over the past 50 years, the CEA said.

The other key theme was to increase the level of formalisation in order to build resilience into the economy, according to Subramanian, since formal sector firms are more resilient in a crisis than informal firms.

From 2011-12 to 2017-18, the number of salaried workers increased by 5% or over 2 crore, the CEA said, adding that these were changes from casual labour to the salaried class.

Simplifying customs laws
As part of the budget for FY22, the government is working to simplify customs laws under the Goods and Services Tax regime, according to Vivek Johri, member of the Central Board of Indirect Taxes and Customs.

“We have crowdsourced ideas, we have got a lot of suggestions, thousands of them, and we are in the process of sifting through them,” Johri said at the conference.

In terms of trade facilitation, the CBIC had cut the average release time for imports to 85 hours and was working to reduce it by 48 hours, Johri said.