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India Achieves Current Account Surplus in Q4 FY24, Lowest Annual CAD in 7 Years

Published 25-06-2024, 08:25 pm

India has recorded a current account surplus of $5.7 billion (0.6% of GDP) in the fourth quarter (Q4) of FY24, marking the first surplus after ten consecutive quarters of deficits. This positive development is a significant turnaround from the previous quarter's deficit of $8.7 billion (1% of GDP), driven by a lower trade deficit, robust growth in services exports, and strong remittances.

For the full fiscal year, India's current account deficit (CAD) more than halved, reaching a seven-year low of $23.2 billion, compared to $67 billion in FY23. This substantial improvement in the current account balance reflects the country’s economic resilience amidst global uncertainties.

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According to the Reserve Bank of India’s statement on "Developments in India’s Balance of Payments," the net services receipts increased to $42.7 billion in Q4 FY24 from $39.1 billion a year ago, significantly contributing to the surplus.

The CAD for FY24 was 0.7% of GDP, a sharp decline from the 2% recorded in FY23. This improvement is mainly attributed to a narrowing merchandise trade deficit, which dropped to a ten-quarter low of $50.9 billion in Q4 FY24 from $69.9 billion in Q3 FY24. The substantial services trade surplus and strong remittances also played crucial roles in this recovery.

For FY25, economists like Madan Sabnavis from Bank of Baroda (NS:BOB) anticipate the CAD to be manageable at 1-1.5% of GDP, supported by steady capital inflows and a comfortable balance of payments. This outlook suggests that the Indian rupee will remain stable within the range of INR 83-84/$, influenced by external factors such as the strength of the dollar.

Aditi Nayar, Chief Economist at ICRA (NS:ICRA), noted the significant turnaround from a deficit in the year-ago period to a surplus in Q4 FY24. She highlighted the narrowing merchandise trade deficit and the robust services trade surplus as key drivers. ICRA projects a slight increase in CAD for FY25 to around 1-1.2% of GDP, due to expected domestic demand and higher commodity prices, with an average crude oil price assumption of $85 per barrel.

Nayar also indicated that the CAD of 1-1.2% of GDP in FY25 would be comfortably financed, particularly with anticipated large foreign portfolio investment (FPI) inflows following the bond index inclusion starting in June 2024.

India’s current account dynamics have shown marked improvement, achieving a surplus in Q4 FY24 and reducing the annual CAD to a seven-year low. While challenges remain, such as potential increases in the merchandise trade deficit, the country’s strong services sector and remittance inflows provide a stable foundation for future economic stability.

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