India’s current account balance posted a surplus of $5.7 billion or 0.6 per cent of Gross Domestic Product (GDP) in the fourth quarter ended March 2024 (Q4FY24) after a gap of 10 quarters on the back of a surge in services exports, the latest data released by the Reserve Bank of India showed.
There was a current account deficit of $1.3 billion (0.2 per cent of GDP) in the fourth quarter of the previous financial year. The current account deficit was $8.7 billion (1.0 per cent of GDP) in the quarter ended December 2023 (Q3FY24).
For FY24, the current account deficit moderated to $23.2 billion (0.7 per cent of GDP) from $67 billion (2.0 per cent of GDP) in FY23 on the back of a lower merchandise trade deficit.
Aditi Nayar, chief economist at ICRA, said India’s CAD more than halved to a seven-year low of $23.2 billion in FY24 from $67 billion in FY23, aided by a narrower merchandise trade deficit and a robust expansion in the services trade surplus.
“The turnaround to a surplus in Q4FY24 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 in Q4FY24 from $69.9 billion in Q3FY24,” Nayar said.
Elaborating on quarterly trends, RBI said the net services receipt at $42.7 billion was higher in Q4FY24 than its level a year ago ($39.1 billion), which contributed to the surplus in the current account balance during Q4FY24.
Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $14.8 billion from $12.6 billion a year ago. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $32.0 billion, an increase of 11.9 per cent over their level a year ago, RBI added.
As for the status of the foreign exchange reserves, RBI said the accretion to the foreign exchange reserves excluding valuation effect was sixfold to $30.8 billion in Q4FY24 compared to $5.6 billion in Q4FY23.
For FY24, the net invisibles receipt was higher during 2023-24 than a year ago, primarily on account of services and transfers, RBI added.
On the forex front, there was an accretion of $63.7 billion in FY24 as against a decrease of $9.1 billion in FY23.
Commenting that CAD is expected to rise slightly in FY25, Nayar said the deficit will remain eminently manageable at ~1.0-1.2 per cent of GDP, owing to a widening in the merchandise trade deficit in this fiscal, on the back of domestic demand and higher commodity prices.
“The CAD in FY25 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 said.
Madan Sabnavis, chief economist at Bank of Baroda, said the CAD should be manageable at 1-1.5 per cent of GDP in FY25. The steady capital inflows should ensure that the balance of payments, which reflect the fundamentals, remain comfortable, he added.
First Published: Jun 24 2024 | 8:29 PM IST
