It is hard to say whether this current account surplus is sustainable or more of a flash in the pan. Clearly, it needs a big effort and a confluence of macro factors to be able to sustain this surplus, which India has always struggled to sustain. Broadly, the ability to sustain the current account surplus depends on the supply chain and the price of crude oil.

Firstly, the disruptions in the supply chain could hit exports negatively. The lag effect of COVID-19 is far from over and is likely to hit the economy in two ways. Firstly, labour will still be hard to come by and materials and logistics will still pose a challenge. Secondly, India still depends on imports to keep supply chains stocked up and that is not going to change.

The bigger risk to sustaining the current account surplus is the price of crude oil. Why does it really matter? As global demand and economic activity pick up, the first big impact could be on the oil import bill and the oil induced inflation. The real challenge could come from the way the government has taxed diesel and petrol to the hilt. It has to now pass on price rise.

The bigger challenge is that the domestic oil extraction capacity hardly fills up 10-15% of the oil needs of the Indian economy and therefore imports are inevitable. Crude oil is already at $40/bbl and any higher level of oil prices would mean a return to trade and current account deficits for India. Oil could be the difference between CAD and CAS in coming months.