India Records Current Account Surplus in March Quarter, Boosted by Service Exports and Remittances

India achieved a current account surplus of USD 5.7 billion, or 0.6% of GDP, in the March quarter, according to the Reserve Bank of India (RBI). This marks the first surplus in ten quarters. A year earlier, the current account deficit was USD 1.3 billion or 0.2% of GDP, and USD 8.7 billion or 1% of GDP in the previous quarter ending December 2023.

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For FY24, the current account deficit narrowed significantly to USD 23.2 billion or 0.7% of GDP from USD 67 billion or 2% of GDP in FY23, as per the RBI's release on India's Balance of Payments developments. The merchandise trade deficit for January-March 2024 was USD 50.9 billion, lower than the USD 52.6 billion recorded a year ago.

Foreign Portfolio Investments and Trade Gap

Domestic rating agency Icra's chief economist Aditi Nayar anticipates the FY25 current account deficit to rise slightly to between 1-1.2% of GDP but considers it manageable. She attributes this increase to a widening merchandise trade gap driven by domestic demand and higher commodity prices. Nayar also highlighted that higher foreign portfolio investments (FPI) in India's bond market indices will ease financing pressures.

The net services receipts were USD 42.7 billion in January-March 2024, up from USD 39.1 billion a year earlier, reflecting a 4.1% growth in the segment. This increase contributed to turning the current account into surplus territory.

Primary Income and Private Transfers

The net outgo on the primary income account, mainly due to investment income payments, rose to USD 14.8 billion from USD 12.6 billion a year ago, according to RBI data. Private transfer receipts, primarily remittances by Indians working abroad, grew by 11.9% to reach USD 32 billion in the March quarter.

Non-resident deposits surged to USD 5.4 billion in January-March compared to USD 3.6 billion in the same period last year. Net foreign direct investment (FDI) flows were USD 2 billion in Q4 FY24, down from USD 6.4 billion a year ago.

Capital Account and Investment Flows

Foreign portfolio investment saw a net inflow of USD 11.4 billion during the quarter, contrasting with a net outflow of USD 1.7 billion a year ago. Net inflows under external commercial borrowings were USD 2.6 billion against USD 1.7 billion previously.

In FY24, portfolio investment recorded a net inflow of USD 44.1 billion compared to an outflow of USD 5.2 billion a year earlier, while net FDI dropped to USD 9.8 billion from USD 28 billion in FY23, according to RBI data.

The substantial foreign portfolio investment inflows of USD 44.1 billion in FY24 versus outflows of USD 4.8 billion helped the overall capital account post a net addition of USD 87 billion compared to USD 57.9 billion in FY23.

This financial performance highlights India's improved external strength and manageable economic outlook despite some challenges ahead.