India's balance of payments (BOP) position has been on an improving trend with the country’s current account swinging to a surplus in January-March, the first time this has happened in eleven quarters. Merchandise trade deficit has narrowed and foreign exchange reserves too have risen. Economists expect things likely to remain steady in the current financial year too, although some cushion may be warranted against possible global shocks amid continued geo-political tensions and tariff wars.
Data from the Reserve Bank of India released earlier this week showed India's current account balance recorded a surplus of $5.7 billion in the January-March quarter, compared with a deficit of $8.7 billion in the October-December quarter and $1.3 billion in the year ago quarter. Merchandise trade deficit in the March quarter was at $50.9 billion, lower than the $52.6 billion reported a year ago.
For the full year 2023-24, the current account deficit (CAD) moderated to $23.2 billion (0.7 per cent of GDP) from $67 billion (2 per cent of GDP) in the previous year.
"Improvement in current account balance to 0.6 per cent of GDP surplus in fourth quarter fiscal 2024, from a deficit of 0.2 per cent of GDP a year ago reflects improvement on all three fronts i.e. merchandise trade defict narrowed, services trade surplus increased and remittances rose," said Dharmakirti Joshi, chief economist at CRISIL.
Foreign exchange reserves rose $30.8 billion in the March quarter, the highest in ten quarters; forex reserves were at $652.9 billion as of June 14.
"Healthy momentum in goods exports and expected moderation in imports suggest the 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," said Joshi.
In the fourth quarter, the balance of payments (BoP) recorded a surplus of $30.8 billion, pushing full year BoP surplus to $64 billion, compared with a deficit of $9 billion in the 2023 financial year.
Madhavi Arora, lead economist at Emkay Global Financial Services says healthy services exports, including IT services and the emerging GCC (Global Capability Centres) space led by business consulting and financial services, have largely helped prop the current account.
"FY2025 CAD/GDP is likely to see the rub-off effect of the structurally improving external sector,
including the solidly emerging GCC space, and could stay at 1.1-1.2 per cent," said Arora.
Suman Chowdhury, chief economist and head-research at Acuite Ratings sees CAD at 0.9 per cent of GDP ($34 billion) in the current financial year, while BoP will remain in surplus at 1.3 per cent of GDP ($50 billion).
"Lower trade deficit driven by the resilience in India's merchandise exports and the healthy momentum in services exports have translated to a current account surplus in the last quarter of FY24, despite a relatively weak global economy," he said.
He is not expecting such a surplus scenario to sustain in the subsequent quarters, given the vulnerability of the trade balance to geo-political risks and higher rude oil prices.
"However, the CAD is likely to stand somewhat lower in FY25 and accompanied by the buoyancy in capital flows amidst the inclusion of Indian bonds in global indices along with the impending Fed rate cuts, should continue to generate a BoP surplus for the economy," added Chowdhury.
