Understanding India's Current Account Surplus Projection

The question asks about the projected Current Account Surplus for India in the Financial Year 2021 (FY21), as stated in the Economic Survey of India 2020-21.

The Current Account is a key component of a country's balance of payments. It records the value of exports and imports of goods and services, as well as net international transfers and factor income (like interest and dividends).

• A Current Account Surplus occurs when a country's total credits from international transactions (primarily exports and income received) exceed its total debits (primarily imports and income paid).
• A Current Account Deficit occurs when total debits exceed total credits.

The Economic Survey is an annual report presented by the Government of India that reviews the country's economic development over the previous year. The Economic Survey 2020-21 covered the performance of the Indian economy up to that point and provided projections and analyses.

According to the Economic Survey 2020-21, India was expected to register a Current Account Surplus in FY21. This was a notable shift compared to previous years which often saw deficits. The surplus was primarily attributed to a sharp contraction in imports due to the economic slowdown caused by the COVID-19 pandemic, while exports held up relatively better, along with resilient remittances.

The specific projection for the Current Account Surplus as a percentage of GDP in the Economic Survey 2020-21 was 2\%.

Therefore, based on the data presented in the Economic Survey of India 2020-21, India was expected to have a Current Account Surplus of 2\% of GDP in FY21.

Analysis of Options

Let's look at the given options:

• Option 1: 1\%
• Option 2: 3\%
• Option 3: 2\%
• Option 4: 4\%

Comparing these options with the projection mentioned in the Economic Survey 2020-21, the figure of 2\% matches the expected Current Account Surplus to GDP ratio for FY21.

Conclusion

The Economic Survey of India 2020-21 projected India's Current Account Surplus to be 2\% of GDP for the Financial Year 2021.

Revision Table: Economic Survey & Current Account

Additional Information: Factors Affecting Current Account

Several factors can influence a country's Current Account balance:

• Trade Balance: The difference between the value of goods and services exported and imported. A positive trade balance (more exports) contributes to a Current Account Surplus.
• Remittances: Money sent by citizens working abroad to their home country. These are recorded as current transfers and contribute positively to the Current Account.
• Factor Income: Income earned from investments abroad (e.g., interest, dividends) minus income paid to foreign investors. Net positive factor income adds to the Current Account balance.
• Exchange Rates: A weaker domestic currency can make exports cheaper and imports more expensive, potentially improving the Current Account balance.
• Domestic Demand: Strong domestic demand can lead to increased imports, potentially worsening the Current Account balance.
• Global Economic Conditions: Recessions or booms in major trading partners can significantly impact export and import volumes.

In the case of FY21, the global pandemic significantly impacted many of these factors, particularly suppressing import demand due to lockdowns and economic uncertainty, which played a key role in the projected surplus.