India’s current account balance recorded a surplus of $5.7 billion (0.6% GDP) in Q4 FY24 against a deficit of $1.3 billion (0.2% GDP) a year ago as per data released by the Reserve Bank of India (RBI) on Monday. The merchandise trade deficit at $50.9 billion in Q4 FY24 was lower than $52.6 billion a year ago and Q4 services exports grew 4.1% year-on-year (YoY) on the back of rising software exports, travel and business services, the RBI said.
“India’s current account turned to a welcome surplus in Q4 FY24 after a gap of ten quarters, at $5.7 billion, exceeding ICRA’s more modest expectations. The turnaround to a surplus from a deficit in the year-ago period, was primarily driven by a narrowing in the merchandise trade deficit print to a ten-quarter low of $50.9 billion in Q4 FY24 from $69.9 billion in Q3 FY24,” Aditi Nayar, Chief Economist, ICRA said in her comment.
Higher services receipts
Net services receipts at $42.7 billion was higher than a year ago ($39.1 billion), which contributed to the current account surplus in Q4 FY24, it added.
As per RBI’s data, net outgo on the primary income account, mainly on payments of investment income, rose to $14.8 billion from $12.6 billion YoY.
Private transfer receipts, mainly representing remittances by overseas Indians was $32 billion, a rise of 11.9% YoY.
In the financial account, net foreign direct investment flows were $2 billion in Q4 FY24 compared with $6.4 billion a year ago.
Net foreign portfolio investment recorded an inflow of $11.4 billion in Q4 FY24 from a net outflow of $1.7 billion during Q4 FY23.
Net inflows under external commercial borrowings amounted to $2.6 billion in Q4 FY24 compared with $1.7 billion a year ago.
Non-resident deposits recorded a higher net inflow of $5.4 billion than $3.6 billion in Q4 FY23.
There was an accretion off oreign exchange reserves to the tune of $30.8 billion excluding valuation effects in Q4 FY24 compared with $5.6 billion a year ago.
Balance of payments
Overall, India’s FY24 current account deficit moderated to $23.2 billion (0.7% GDP) from $67.0 billion (2% GDP) in FY23.
Net invisibles receipt was higher during FY24 than a year ago, primarily on account of services and transfers. In FY24, portfolio investment recorded a net inflow of $44.1 billion against an outflow of $5.2 billion a year ago.
FY24 net FDI inflow was $9.8 billion compared with $28 billion in FY23.
In FY24, there was an accretion of $63.7 billion to the foreign exchange reserves (on a balance of payment basis).
“Aided by a narrower merchandise trade deficit and a robust expansion in the services trade surplus, India’s current account deficit (CAD) more-than-halved to a seven-year low of $23.2 billion in FY24 from $67 billion in FY23. As a proportion of GDP, it eased to a mild 0.7% from 2% in FY23.” Ms. Nayar said.
ICRA expects the CAD to rise slightly in FY25, while remaining manageable at 1-1.2% GDP, owing to a widening in the merchandise trade deficit this fiscal, on the back of domestic demand and higher commodity prices.
“In particular, we have assumed an average price of the Indian basket of crude oil of $85/barrel. A CAD of 1-1.2% of GDP 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.
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