India’s current account balance recorded a surplus of $5.7 billion or 0.6% of the gross domestic product (GDP) in Q4FY24 as against deficits of $8.7 billion (1%) in the previous quarter, and $1.3 billion (0.2%) in the year-ago period, the Reserve Bank of India (RBI) said on Monday. Relatively lower goods trade deficit and robust net services trade boosted the current account in the latest quarter under review.

The last time the account saw a surplus was in Q1FY22 (0.9% of GDP).

On a balance of payment basis, Q4FY24 saw net accretion of foreign exchange reserves of $30.8 billion, compared with accretion of $6 billion in Q3FY24 and $5.6 billion in Q4FY23. The addition to reserves in Q4 last fiscal was the highest sine Q2FY22.

The merchandise trade deficit at $50.9 billion in Q424 was lower than $ 52.6 billion a year ago.

However, in the current quarter (Q1FY25), the current account is likely to register a modest deficit, given that the merchandise trade deficit was relatively higher in April ($19.1 billion) and May ($23.8 billion). Also, capital flows have moderated in the current quarter– FPIs were net sellers $1.84 billion of equity and debt between April 1 to June 21.

The capital account in Q4FY24 produced a strong surplus of $24.53 billion compared with around $15 billion in the previous quarter. While portfolio inflows kept pace through Q3 and Q4, the former period saw unsually big net outflows in the “other capital” category which includes leads and lags in exports.

The turnaround to a surplus in Q4 FY2024 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 FY2024 from $69.9 billion in Q3 FY2024.

ICRA expects the CAD to rise slightly in FY25, while remaining eminently manageable at around 1-1.2% of GDP, owing to a widening in the merchandise trade deficit in 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 FY2025 would be comfortably financed, particularly given the expectations of large FPI-debt inflows on account of the bond index inclusion starting end-June 2024,” wrote Aditi Nayar, chief economist.

“For FY25, going by the early trends, the CAD should be manageable at 1-1.5% of GDP and the steady capital inflows should ensure that the balance of payments which reflect the fundamentals remain comfortable. This will also keep rupee range bound at Rs 83-84/$ with external factors like strength of the dollar guiding the currency,” said Madan Sabnavis, chief economist at Bank of Baroda.

Services exports grew by 4.1% on a y-o-y basis in Q424 on the back of rising exports of software, travel and business services. Net services receipt at $42.7 billion was higher than its level a year ago ($ 39.1 billion).

Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $14.8 billion from $12.6 billion a year ago. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $32.0 billion, an increase of 11.9% over their level a year ago.

In the financial account, net foreign direct investment flows were $2 billion in Q4FY24 as compared with $6.4 billion a year ago. Foreign portfolio investment recorded a net inflow of $11.4 billion in Q4FY24 as against a net outflow of $1.7 billion during Q4FY23. Net inflows under external commercial borrowings to India amounted to $2.6 billion in Q4FY24 as 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 Q4Fy23.

BoP during 2023-24

India’s CAD moderated to $23.2 billion (0.7% of GDP) during 2023-24 from $67.0 billion (2%) during the previous year on the back of a lower merchandise trade deficit. Net invisibles receipt was higher during 2023-24 than a year ago, primarily on account of services and transfers.

During 2023-24, portfolio investment recorded a net inflow of $44.1 billion as against an outflow of $ 5.2 billion a year ago. Net FDI inflow was $ 9.8 billion during 2023-24 as compared with $28.0 billion in 2022-23. In 2023-24, there was an accretion of $63.7 billion to the foreign exchange reserves on a BoP basis.

(The article has been co-authored by Kishore Kadam)