India's Current Account Turns Surplus After Deficit In Last Quarter: Report

India has recorded an improvement in its current account, achieving a surplus of $5.7 billion, which equates to 0.6 per cent of its gross domestic product (GDP) in the fourth quarter of fiscal year 2024, according to a recent report by CRISIL.

This is a significant shift from the $8.7 billion deficit (1.0 per cent of GDP) reported in the third quarter, and a notable improvement compared to the $1.3 billion deficit (0.2 per cent of GDP) in the fourth quarter of the previous fiscal year.

Improvement in the current account balance is attributed to several factors, including a narrowing merchandise trade deficit, an increased services trade surplus, and a rise in remittances.

Financial flows also showed considerable improvement both on a quarterly and yearly basis, resulting in a substantial foreign exchange reserve accretion of $30.8 billion during the fourth quarter--the highest in the past ten quarters.

As of June 14, India's forex reserves touched $652.9 billion.

The fourth quarter saw India's current account surplus rise to 0.6 per cent of GDP, a significant recovery from the 1.0 per cent deficit recorded in the third quarter.

The trade deficit narrowed considerably to 0.9 per cent of GDP from 2.7 per cent in the previous quarter.

This was mainly driven by a reduction in the merchandise trade deficit, which decreased to 5.4 per cent of GDP from 7.7 per cent , even though the services trade surplus slightly moderated to 4.5 per cent from 5.0 per cent.

The primary income account deficit widened marginally to 1.6 per cent of GDP from 1.4 per cent in the previous quarter, while the secondary income account surplus declined to 3.0 per cent from 3.2 per cent .

Net financial inflows increased to 2.6 per cent of GDP from 1.7 per cent in the previous quarter, contributing to the sharp rise in forex reserves by USD 30.8 billion.

This is a marked improvement from the USD 6.0 billion accretion in the third quarter, reflecting the robust inflows and strong economic fundamentals.

India's current account deficit (CAD) for fiscal 2024 narrowed sharply to USD 23.2 billion (0.7 per cent of GDP) from USD 67.0 billion (2.0 per cent of GDP) in fiscal 2023.

The goods trade deficit also decreased to USD 242.1 billion from USD 265.2 billion, driven by a sharper decline in imports (-5.2 per cent on-year) compared to exports (-3.2 per cent on-year).

The services trade surplus rose to USD 162.7 billion from USD 143.3 billion in the previous fiscal year.

Notable improvements were seen in sectors such as 'telecom, computer, and information services' which grew to USD 142.7 billion from USD 132.5 billion, and 'professional and management consulting services,' which increased to USD 45.3 billion from USD 40.8 billion.

Travel services also posted a mild surplus, reversing a deficit of USD 1.4 billion in the previous fiscal year.

The secondary income surplus, which includes remittances from abroad, improved to USD 105.8 billion in fiscal 2024, up from USD 100.9 billion in fiscal 2023.

The report highlighted that despite continuous inward foreign direct investment (FDI), the rise in outward FDI led to a reduction in net FDI inflows.

Net FDI inflow stood at USD 2.0 billion in the fourth quarter, down from USD 3.9 billion in the third quarter and USD 6.4 billion in the same period last year.

FDI inflows increased to USD 19.8 billion during the fourth quarter, but this was offset by accelerated FDI outflows, which rose to USD 17.9 billion from USD 10.7 billion.

Other investments, including non-resident Indian (NRI) deposits, external commercial borrowings (ECBs), other loans, and trade credit, saw a significant jump to USD 14.28 billion in the fourth quarter from USD 1.22 billion in the previous quarter.

This category was bolstered by a rise in net inflow under NRI deposits to USD 5.4 billion from USD 3.9 billion, and a shift in ECBs to an inflow of USD 2.6 billion from an outflow of USD 2.7 billion.

Forex reserves surged by USD 30.8 billion in the fourth quarter, compared to a USD 6.0 billion increase in the third quarter.

As of the end of March 2024, the reserves stood at USD 642.63 billion. The rupee appreciated by 0.27 per cent during the quarter, averaging 83.02 per US dollar, in contrast to a 0.7 per cent depreciation in the previous quarter.

A country's current account represents its imports and exports of goods and services, payments made to foreign investors, and transfers such as foreign aid.