India saw an improvement in its current account, posting a surplus of $5.7 billion, equivalent to 0.6 percent of its gross domestic product (GDP) in the fourth quarter of fiscal 2024, according to a recent report by CRISIL.
This represents a significant change from the deficit of $8.7 billion (1.0 percent of GDP) reported in the third quarter and represents a notable improvement from the deficit of $1.3 billion (0.2 percent of GDP) in the fourth quarter of the previous fiscal year.
The improvement in the current account is attributed to several factors, including a decline in the trade deficit in goods, an increased trade surplus in services and an increase in remittances.
Financial flows also improved significantly on both a quarterly and annual basis, leading to a significant increase in foreign exchange reserves of US$30.8 billion in the fourth quarter – the highest in the last ten quarters.
As of June 14, India’s foreign exchange reserves reached $652.9 billion.
In the fourth quarter, India's current account surplus increased to 0.6 percent of GDP, representing a significant recovery from the deficit of 1.0 percent in the third quarter.
The trade deficit decreased significantly from 2.7 percent in the previous quarter to 0.9 percent of GDP.
The main reason for this was the reduction in the trade deficit in the goods sector, which fell from 7.7 percent to 5.4 percent of GDP, even though the trade surplus in the services sector weakened slightly from 5.0 percent to 4.5 percent.
The primary income account deficit increased slightly from 1.4 percent in the previous quarter to 1.6 percent of GDP, while the secondary income account surplus decreased from 3.2 percent to 3.0 percent.
Net financial inflows rose to 2.6 percent of GDP from 1.7 percent in the previous quarter and contributed to the sharp increase in foreign exchange reserves of $30.8 billion.
This represents a significant improvement over the $6.0 billion increase in the third quarter and reflects robust cash inflows and strong economic fundamentals.
India's current account deficit (CAD) narrowed significantly to USD 23.2 billion (0.7 percent of GDP) in fiscal year 2024 from USD 67.0 billion (2.0 percent of GDP) in fiscal year 2023.
The trade deficit also decreased from USD 265.2 billion to USD 242.1 billion. This was due to a sharper decline in imports (-5.2 percent year-on-year) than in exports (-3.2 percent year-on-year).
The trade surplus in the services sector increased to USD 162.7 billion from USD 143.3 billion in the previous year.
Notable improvements were seen in sectors such as “Telecommunications, computer and information services,” which increased from $132.5 billion to $142.7 billion, and “Professional and management consulting services,” which increased from $40.8 billion to $45.3 billion.
Travel services also recorded a slight surplus, making up for a deficit of $1.4 billion from the previous fiscal year.
The surplus from secondary revenues, which includes remittances from abroad, improved to $105.8 billion in fiscal year 2024 (from $100.9 billion in fiscal year 2023).
The report highlighted that despite continued foreign direct investment (FDI), the increase in outbound FDI resulted in a reduction in net FDI inflows.
Net foreign direct investment inflows amounted to $2.0 billion in the fourth quarter, down from $3.9 billion in the third quarter and $6.4 billion in the same period last year.
FDI inflows increased to $19.8 billion in the fourth quarter, but this was offset by accelerated FDI outflows, which rose to $17.9 billion from $10.7 billion.
Other investments, including non-resident Indian (NRI) deposits, external commercial borrowings (ECBs), other loans and trade credit, saw a significant jump from $1.22 billion in the previous quarter to $14.28 billion in the fourth quarter.
This category was strengthened by an increase in net inflows in NRI deposits from USD 3.9 billion to USD 5.4 billion and a shift in outflows from ECBs from USD 2.7 billion to USD 2.6 billion.
Foreign exchange reserves increased by $30.8 billion in the fourth quarter, compared with an increase of $6.0 billion in the third quarter.
At the end of March 2024, reserves stood at $642.63 billion. The rupee appreciated by 0.27 percent during the quarter, averaging 83.02 per US dollar, compared to a depreciation of 0.7 percent in the previous quarter.
A country's current account reflects the import and export of goods and services, payments to foreign investors and transfers such as development aid.
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