India’s Current Account Surplus in Q4 FY24

  • June 25, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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India’s Current Account Surplus in Q4 FY24

Sub: Economy

Sec: External Sector

India’s current account recorded a notable surplus of $5.7 billion (0.6% of GDP) in Q4 FY24, a significant turnaround from a deficit of $1.3 billion (0.2% of GDP) a year ago.

This marks the first surplus after ten consecutive quarters of deficit. The surplus is attributed to several factors, including a reduction in the merchandise trade deficit and a rise in net services receipts.

Key Highlights:

  • Current Account Surplus:
    • $5.7 billion surplus (0.6% of GDP) in Q4 FY24.
    • Reversal from a $1.3 billion deficit (0.2% of GDP) in Q4 FY23.
  • Trade Deficit:
    • Narrowed to $50.9 billion in Q4 FY24 from $52.6 billion in Q4 FY23.
    • Reduced trade deficit significantly contributed to the current account surplus.
  • Services Exports:
    • Grew by 4.1% year-on-year (YoY), driven by rising software exports, travel, and business services.
  • Financial Account:
    • Net foreign direct investment (FDI) flows: $2 billion in Q4 FY24, compared to $6.4 billion in Q4 FY23.
    • Net foreign portfolio investment (FPI) inflows: $11.4 billion in Q4 FY24, up from a net outflow of $1.7 billion in Q4 FY23.
    • Net inflows under external commercial borrowings: $2.6 billion in Q4 FY24, up from $1.7 billion a year ago.
    • Non-resident deposits: Higher net inflow of $5.4 billion in Q4 FY24, compared to $3.6 billion in Q4 FY23.
  • Foreign Exchange Reserves:
    • Accretion of $30.8 billion in Q4 FY24 (excluding valuation effects), compared to $5.6 billion a year ago.
  • Primary Income Account:
    • Net outgo mainly on payments of investment income rose to $14.8 billion from $12.6 billion YoY.
  • Private Transfer Receipts:
    • Representing remittances by overseas Indians, rose to $32 billion, an increase of 11.9% YoY.

Annual Overview FY24:

  • Overall Current Account Deficit:
    • Moderated to $23.2 billion (0.7% of GDP) from $67.0 billion (2% of GDP) in FY23.
  • Net Invisibles Receipts:
    • Higher during FY24, mainly due to increased services and transfers.
  • Portfolio Investment:
    • Recorded a net inflow of $44.1 billion in FY24, reversing from a net outflow of $5.2 billion in FY23.
  • Net FDI Inflow:
    • $9.8 billion in FY24, down from $28 billion in FY23.

Significance and Implications

  • Economic Stability: The surplus in the current account in Q4 FY24 indicates improved economic stability and resilience.
  • Foreign Investment: Despite a reduction in net FDI inflows, significant FPI inflows suggest renewed investor confidence.
  • Policy Impact: The narrowing of the trade deficit and growth in services exports reflect positively on the policies aimed at boosting India’s export capabilities.

Summary:

India’s current account recorded a $5.7 billion surplus in Q4 FY24, marking the first surplus in ten quarters. This improvement was driven by a narrowing trade deficit, higher services exports, and increased financial inflows. Overall, the FY24 current account deficit moderated to $23.2 billion, significantly lower than the previous year. Key contributors included higher net invisibles receipts and portfolio investment inflows, despite a drop in net FDI inflows.

Current Account Deficit (CAD) vs. Current Account Surplus (CAS)

  • Current Account Deficit (CAD):
    • Definition: Occurs when a country’s imports of goods and services are greater than its exports.
    • Implication: Indicates a net outflow of domestic currency to foreign markets. It can lead to borrowing from foreign sources, impacting national debt and economic stability.
    • Investor Sentiment: High CAD can deter foreign investment due to concerns about the country’s economic health.
  • Current Account Surplus (CAS):
    • Definition: Occurs when a country’s exports of goods and services exceed its imports.
    • Implication: Indicates a net inflow of foreign currency, strengthening the local currency and increasing foreign exchange reserves.
    • Economic Health: Generally seen as a sign of economic strength, as it suggests that the country is competitive in international markets and has robust foreign currency reserves.

Twin Deficits: 

CAD and Fiscal Deficit: Together, they form the twin deficits that can impact the stock market and investor confidence.

Fiscal Deficit: The gap between the government’s expenditure requirements and its receipts, indicating the money the government needs to borrow during the year.

Implications:

  • Economic Impact:
    • Significance: CAD affects the overall economy, stock markets, and individual investments.
    • Investor Sentiment: A lower CAD can improve investor sentiment, making the country’s currency more attractive.
  • Foreign Exchange Reserves:
    • Surplus Impact: A surplus in the current account means more money is flowing into the country than out, boosting foreign exchange reserves and the value of the local currency.
economy India’s Current Account Surplus in Q4 FY24