India's Q4 2023-24 Current Account Swings to Surplus of USD 5.7 Billion, Driven by Narrowing Trade Deficit

India's current account achieved a surplus of USD 5.7 billion (0.6% of GDP) in Q4 2023-24, aided by reduced merchandise trade deficit, increased remittances, and a surplus in services trade, as per a CRISIL report. Compared to the previous quarter's deficit of USD 8.7 billion (1% of GDP), this marks significant improvement.

In a notable turnaround, India's current account posted a surplus of USD 5.7 billion, equivalent to 0.6 per cent of its GDP, for the fourth quarter of the 2023-24 fiscal year, as reported by CRISIL on Wednesday. This improvement was largely driven by a narrowing of the merchandise trade deficit, a surge in remittances, and a services trade surplus.

This positive shift comes in stark contrast to the third quarter of the same fiscal year, when the current account was in deficit by USD 8.7 billion, or one per cent of GDP. Similarly, the corresponding period of the previous fiscal year had recorded a deficit of USD 1.3 billion, equating to 0.2 per cent of GDP.

According to CRISIL, the 0.6 per cent GDP surplus in Q4 indicates comprehensive improvement across key areas: a narrowed merchandise trade deficit, an increased services trade surplus, and higher remittances. Financial inflows also surged, boosting foreign exchange reserves by USD 30.8 billion in the quarter. As of June 14, 2024, India's foreign reserves stood at USD 652.9 billion.

Despite continued robust FDI inflows, the rise in outward FDI led to reduced net flows. The report suggests that the current account deficit is likely to remain manageable for the 2024-25 financial year, given the healthy momentum in goods exports and an expected moderation in imports. Strong external buffers are vital due to escalating global risks, including geopolitical uncertainties and trade wars, the report concluded.

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