India's Current Account Surplus in FY24: Key Insights and Future Outlook

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India's Current Account Surplus in FY24: Key Insights and Future Outlook

Team Finance Saathi

25/Jun/2024

Key Points:
1: India's current account posted a surplus of US$ 5.7 billion in Q4 FY24, driven by a surge in services exports.
2: FY24 CAD decreased to US$ 23.2 billion, 0.7% of GDP, from US$ 67 billion in FY23, mainly due to lower merchandise trade deficit.
3: Analysts expect FY25 CAD to rise slightly to 1-1.2% of GDP, supported by FPI-debt inflows amid bond index inclusion.

India's economic landscape saw a notable shift in the fiscal year 2023-24 (FY24) with the country's current account balance swinging to a surplus after a decade-long hiatus. According to data released by the Reserve Bank of India (RBI), India recorded a current account surplus of US$ 5.7 billion in the fourth quarter of FY24, marking 0.6% of the Gross Domestic Product (GDP). This turnaround from a deficit of US$ 1.3 billion in the same period the previous year underscores significant changes in India's trade dynamics.

The surplus was primarily fueled by a robust increase in services exports, which saw substantial growth during the period. This surge in services exports contributed significantly to narrowing the merchandise trade deficit to a 10-quarter low of US$ 50.9 billion. Lowering the trade deficit has been a key driver in reducing India's overall current account deficit (CAD) for FY24 to US$ 23.2 billion, accounting for 0.7% of GDP, down from US$ 67 billion or 2% of GDP in FY23.

Looking ahead, analysts anticipate a slight uptick in the CAD for FY25, projected to range between 1% to 1.2% of GDP. This expected increase is primarily due to a potential widening of the merchandise trade deficit. However, the CAD is deemed manageable, supported by anticipated large Foreign Portfolio Investment (FPI) inflows into India's debt market. These inflows are expected to be bolstered by India's inclusion in global bond indices starting June 2024, enhancing investor confidence and attracting substantial capital flows.

In conclusion, India's journey from deficit to surplus in its current account balance for FY24 reflects positive economic developments and resilience amid global economic uncertainties. The emphasis on services exports and prudent management of the merchandise trade deficit have played pivotal roles in stabilizing India's external account dynamics. As India navigates through the upcoming fiscal years, maintaining a balanced approach to trade and capital flows will be crucial in sustaining economic stability and fostering growth in the global economic landscape.

Also Read : Record-Breaking IPO Activity in 2024 Sets New Highs in Primary Market

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India's Current Account Surplus in FY24: Key Insights and Future Outlook

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