India's Q1 Current Account Deficit Expands Slightly to $9.7 Billion

India's current account deficit widened to USD 9.7 billion in Q1 FY25, representing 1.1% of GDP, compared to USD 8.9 billion a year ago. The increase is attributed to a rise in the merchandise trade gap and a sharp drop in net foreign portfolio investment, despite gains in net services receipts and foreign direct investment.

India's current account deficit expanded marginally to USD 9.7 billion, or 1.1 per cent of GDP, in the first quarter of FY25, as reported by the Reserve Bank of India on Monday. This compares to USD 8.9 billion, or 1 per cent of GDP, recorded during the same period last year.

This critical indicator of the country's external sector strength followed a surplus of USD 4.6 billion or 0.5 per cent of GDP in the previous January-March quarter. The Reserve Bank pointed out that the rise in merchandise trade gap to USD 65.1 billion from USD 56.7 billion year-on-year was a key factor for the widening deficit.

Notably, net services receipts grew to USD 39.7 billion from USD 35.1 billion in the prior year, driven by increases in computer, business, travel, and transportation services. On the downside, net foreign portfolio investment fell sharply to USD 0.9 billion from USD 15.7 billion a year ago.

Moreover, net inflows from external commercial borrowings dropped to USD 1.8 billion compared to USD 5.6 billion in the previous year. Private transfer receipts saw a jump to USD 29.5 billion from USD 27.1 billion, and net foreign direct investment inflows increased to USD 6.3 billion from USD 4.7 billion.

Investment income payments rose to USD 10.7 billion from USD 10.2 billion, while non-resident deposits saw net inflows of USD 4 billion, up from USD 2.2 billion. There was an accretion of USD 5.2 billion to foreign exchange reserves on a balance of payments basis, lower than the USD 24.4 billion recorded in Q1 FY24.

(With inputs from agencies.)