Why India’s trade surplus is a warning signal

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News: Reserve Bank of India(RBI) has released the data on India’s balance of payments (BoP) for Q4 of January-March 2019-20.

Facts:

Key Takeaways:

  • Current account Surplus: India has managed a small current account surplus of US$ 0.6 billion (0.1%:of GDP) in Q4 of 2019-20
  • Reason: The surplus in the current account is largely driven by a lower trade deficit as there was a sharp decline in imports led by gold, petroleum goods, coal, electronics and machineries
  • Significance: This is a rare occurrence because since 1976-77, there has not been a single year when India did not incur a substantial merchandise trade deficit.
  • Concerns: This is a warning sign for the Indian economy as the decline in imports especially in merchandise goods points towards a contraction of demand in the real economy.