India’s CAD reduces to 0.7% of GDP, records surplus of 0.6% in Q4: RBI

India's current account recorded a surplus of $5.7 billion, or 0.6% of the GDP during the March quarter, compared with a deficit of $8.7 billion, or 1% of GDP in the previous quarter due to higher services exports. 

The current account deficit, or CAD, which is the difference between exports and imports of both goods and services, narrowed to $1.3 billion or 0.2% of GDP in the year-ago quarter.

The merchandise trade deficit narrowed during the March quarter to $50.9 billion, from $ 52.6 billion during the year-ago period, the Reserve Bank of India (RBI) said on Monday.

Services exports and transfers saw an improvement in the fourth quarter, helping tame a widening trade balance.

Services exports grew by 4.1% on a y-o-y basis during the fourth quarter of FY24 on the back of rising shipments of software, travel and business services, the RBI data showed.

Net services receipt at $42.7 billion was higher than its level a year ago, at $39.1 billion, which contributed to the surplus in the current account balance during Q4, FY24, it added.

To be sure, India remains a net importer on account of its huge energy needs and the latest surge in crude oil prices, rising to about $85 a barrel, is likely to widen the CAD in the next quarter.

Meanwhile, the net outgo on the primary income account, reflecting payments of investment income, increased to $14.8 billion during the Q4, FY25 period from $12.6 billion in the year-ago period. Private transfer receipts, representing remittances by overseas Indians, amounted to $32.0 billion, registering an 11.9% growth.

Net foreign direct investment flows fell to $2 billion in the Q4, FY24 period compared with $6.4 billion during Q4, FY23.

Foreign portfolio investment recorded a net inflow of $11.4 billion during the March quarter, against a net outflow of $1.7 billion during the year-ago period.

"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," Bank of Baroda said in a statement.

"This will also keep the Rupee range bound at ₹83-84/$ with external factors like the strength of the dollar guiding the currency," it added.

Overall during FY24, India’s current account deficit moderated to $23.2 billion or 0.7% of GDP from $67.0 billion or 2% of GDP 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," the RBI said in the statement.

During FY24, portfolio investment recorded a net inflow of $ 44.1 billion, against an outflow of $ 5.2 billion a year ago, while net FDI inflow was $ 9.8 billion during the fiscal, as compared with $ 28 billion in the previous fiscal.