India reported a current account surplus of $5.7 billion (0.6% of GDP) for the March quarter, thanks to increased service exports and remittances, according to the Reserve Bank of India (RBI).
In contrast, the previous year saw a current account deficit of $1.3 billion (0.2% of GDP), and the preceding quarter ending December 2023 had a deficit of $8.7 billion (1% of GDP).
For FY24, the current account deficit narrowed significantly to $23.2 billion (0.7% of GDP) from $67 billion (2% of GDP) in FY23, as highlighted in the RBI’s Balance of Payments report.
The merchandise trade deficit for January-March 2024 was $50.9 billion, down from $52.6 billion a year earlier. Net services receipts increased to $42.7 billion from $39.1 billion, driven by a 4.1% growth in the sector, helping swing the current account into surplus.
Net outgo on the primary income account rose to $14.8 billion from $12.6 billion a year ago, reflecting higher investment income payments. Private transfer receipts, mainly remittances from Indians abroad, surged 11.9% to $32 billion in the March quarter. Non-resident deposits also rose to $5.4 billion from $3.6 billion a year ago. Additionally, net inflows from external commercial borrowings stood at $2.6 billion, up from $1.7 billion.
For the entire FY24, portfolio investment recorded a net inflow of $44.1 billion, a significant turnaround from the $5.2 billion outflow in FY23. However, net FDI dropped to $9.8 billion from $28 billion the previous year.
Aditi Nayar, Chief Economist at ICRA, remarked, ‘India’s current account turned to a welcome surplus in Q4 FY2024 after a gap of ten quarters, with the size of the same, at $5.7 billion, exceeding ICRA’s more modest expectations. The turnaround to a surplus in Q4 FY2024 from a deficit in the year-ago period was primarily driven by a narrowing in the merchandise trade deficit to a ten-quarter low of $50.9 billion.’
Nayar anticipates a slight rise in the current account deficit (CAD) for FY25, predicting it to remain manageable at around 1.0-1.2% of GDP. This increase is expected due to a widening merchandise trade deficit fueled by domestic demand and higher commodity prices. ‘A CAD of 1.0-1.2% of GDP in FY2025 would be comfortably financed, particularly given the expectations of large FPI-debt inflows on account of the bond index inclusion starting end-June 2024,’ she added.
Madan Sabnavis, Chief Economist at Bank of Baroda, noted, ‘India’s current account balance recorded a surplus of US$ 5.7 billion (0.6% of GDP) in Q4 FY24 as against a deficit of US$ 8.7 billion (1.0% of GDP) in Q3 FY24 and US$ 1.3 billion (0.2 per cent of GDP) a year ago [i.e., Q4 FY23]. For the full year, the deficit moderated to US$ 23.2 billion (0.7% of GDP) during FY24 from US$ 67.0 billion (2.0% of GDP) during the previous year on the back of a lower merchandise trade deficit which was at $242 bn against $265 bn last year.’
Sabnavis also highlighted improvements in net invisibles receipts, which increased due to higher services and transfers, with software receipts rising from $146 billion to $160 billion and gross transfers up from $112 billion to $119 billion. These factors contributed to the improvement in the CAD.
Looking ahead to FY25, Sabnavis expects the CAD to be manageable at 1-1.5% of GDP, supported by steady capital inflows. ‘This will also keep the rupee range-bound at Rs. 83-84/$, with external factors like the strength of the dollar guiding the currency,’ he concluded.
India’s robust performance in services exports and remittances, along with effective management of merchandise trade, has resulted in a positive shift in the current account balance, setting a promising tone for the upcoming fiscal year.
