India just recorded a current account surplus of $13.5 billion (1.3% of GDP) in the January-March quarter of FY25, according to the RBI. This is a significant jump from $4.6 billion in the same period last year and reverses a deficit of $11.3 billion in the previous quarter.
What drove this surplus?
- Soaring Services Exports: Net services receipts surged to $53.3 billion, up from $42.7 billion a year ago, fueled by strong growth in business and computer services.
- Higher Remittances: Indians working abroad sent home more money, with personal transfer receipts rising to $33.9 billion from $31.3 billion.
- Reduced Investment Income Outflows: Payments of investment income moderated to $11.9 billion from $14.8 billion.
- Moderated Trade Deficit: While the merchandise trade deficit was still $59.5 billion (higher than last year), it improved from the previous quarter’s $79.3 billion.
Annual Picture for FY25
Despite the strong Q4, India’s current account for the full fiscal year 2024-25 remained in deficit at $23.3 billion (0.6% of GDP). However, this is an improvement from the $26.0 billion deficit (0.7% of GDP) in FY24, mainly thanks to higher net invisible receipts.
Financial Flows in Q4 FY25
- FDI: Net inflow of $400 million, a drop from $2.3 billion last year. For the full year, net FDI was $1 billion, down from $10.2 billion in FY24.
- FPI: Saw a net outflow of $5.9 billion, a stark contrast to the $11.4 billion inflow last year. For the full year, FPI had a net inflow of $3.6 billion, significantly lower than $44.1 billion in FY24.
- Forex Reserves: Increased by $8.8 billion, though less than the $30.8 billion accretion in Q4 FY24.
What’s Next?
Economists like Aditi Nayar from ICRA expect the current account to likely revert to a deficit in the current quarter (Q1 FY26). This is due to anticipated widening of the merchandise trade deficit and a moderation in the services trade surplus.
India’s current account balance is a key indicator of its external payment health. While the Q4 surplus is a positive sign, the overall annual deficit and projections for the next quarter highlight the ongoing dynamics of global trade and capital flows.