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India’s current account deficit (CAD) has widened marginally to 1.1 per cent of the GDP, to $9.8 billion from $8.9 billion (or 1 per cent) in the year-ago period, in the first quarter (Q1) of FY25, primarily due to a rise in merchandise trade deficit.
CAD occurs when the value of goods and services that a country imports exceeds the value of the products it exports.
In absolute terms, CAD was at $8.9 billion against 8$.9 billion in the year ago quarter. The country had recorded a current account surplus of $4.6 billion (0.5 per cent of GDP) in the fourth quarter (Q4) FY24.
Merchandise trade deficit in the reporting quarter rose to $65.1 billion against $56.7 billion in the year-ago quarter.
Oil and gold
Madan Sabnavis, Chief Economist, Bank of Baroda, said, “The CAD is fairly comfortable and we may expect the deficit to be around 1.5 per cent for the year based on these trends persisting for the full year.”
He opined that both oil and gold were responsible for the increase in merchandise trade deficit, as well as increase in other non-oil imports.
Net service receipts increased on a year-on-year (y-o-y) basis, to $39.7 billion, in Q1FY25 from $35.1 billion a year ago.
Service exports have risen on a y-o-y basis across major categories such as computer services, business services, travel services and transportation services, RBI said in a statement.
Private transfer receipts, mainly representing remittances by Indians employed overseas, increased to $29.5 billion in Q1FY25 from $27.1 billion in Q1FY24.
Net outgo on the primary income account, reflecting payments of investment income, increased to $10.7 billion in Q1FY25 from $10.2 billion in Q1FY24.
FDIs and FPIs
Net foreign direct investment (FDI) inflows increased to $6.3 billion in Q1FY25 from $4.7 billion in the year-ago period. Net inflows under foreign portfolio investment (FPI) moderated to $.9 billion from $15.7 billion.
Sabnavis said FPI will turn around, given the debt flows expected due to the inclusion of bonds in the JP Morgan index.
ECBs, NRI deposits
Net inflows under external commercial borrowings (ECBs) to India amounted to $1.8 billion in Q1FY25, lower than $5.6 billion in the corresponding period a year ago.
Non-resident deposits (NRI deposits) recorded net inflows of $ 4 billion, higher than $2.2 billion a year ago.
There was an accretion of $5.2 billion to the foreign exchange reserves (on a Balance of Payments basis) in Q1FY25 as compared with $24.4 billion in Q1FY24.
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