India’s current account recorded a surplus of $5.7 billion, i.e. 0.6% of gross domestic product (GDP), in the fourth quarter of fiscal 2024 vs a deficit of $8.7 billion (1.0% of GDP) in the third quarter, and $1.3 billion (0.2% of GDP) in the fourth quarter of fiscal 2023.

Improvement in current account balance to 0.6% of GDP surplus in Q4 fiscal 2024, from a deficit of 0.2% of GDP a year ago reflects improvement on all three fronts i.e. merchandise trade defict narrowed, services trade surplus increased and remittances rose.

Along with these, financial flows improved, both on-quarter and on-year, leading to a foreign exchange (forex) reserve accretion of $30.8 billion during the fourth quarter, the highest in 10 quarters. As on June 14, 2024, the country’s forex reserves totalled $652.9 billion.

Even though inward FDI continues, there has been a rise in outward FDI, leading to a reduction in net FDI inflows. However, there is a cushion from additional capital flows due to India’s inclusion in bond indexes.

Healthy momentum in goods exports and expected moderation in imports suggest the current account deficit (CAD) is likely to remain manageable this fiscal as well. To be sure, strong external buffers are crucial at this juncture because global risks, stemming from geopolitical uncertainties, and tariff and trade wars, have heightened.

Key data points for the fourth quarter

• Current account surplus was 0.6% of GDP vis-à-vis 1.0% deficit in the third quarter
• Trade deficit narrowed to 0.9% of GDP from 2.7% in the third quarter. Interestingly, this was primarily on account of merchandise trade deficit, which narrowed to 5.4% of GDP from 7.7%, even as services trade surplus moderated to 4.5% from 5.0%
• Primary income account deficit, though, widened slightly to 1.6% of GDP from 1.4% in the third quarter, whereas secondary income account surplus declined to 3.0% from 3.2%
• Not only did the current account balance improve, but also net financial inflows rose to 2.6% of GDP from 1.7% in the previous quarter
• As a result, forex reserves increased $30.8 billion, sharply up from $6.0 billion accretion in the third quarter