India's Current Account Deficit Shrinks to 0.7% of GDP Amid Strengthening Economy

The falling CAD mirrors an improving set of fundamentals for India, with the country closing out the financial year to March 31 by adding $63.7 billion to its foreign exchange reserves.

India's current account deficit (CAD) for the fiscal year 2023-24 decreased significantly to $23.2 billion, which is 0.7% of the GDP, down from $67 billion, or 2% of GDP, in the previous year. This improvement was primarily driven by a reduction in the merchandise trade deficit, according to the Reserve Bank of India (RBI).

The falling CAD mirrors an improving set of fundamentals for India, with the country closing out the financial year to March 31 by adding $63.7 billion to its foreign exchange reserves.

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Net receipts of invisibles increased by about 15 percent in 2023-24 over the previous year, impelled mainly by growth in services and transfers. Portfolio investment into India's capital markets indeed turned sharply around to a net inflow of $44.1 billion from an outflow of $5.2 billion a year prior.

The latter fell from $28 billion in the previous fiscal year to $9.8 billion in 2023–24 on net foreign direct investment inflows alone.

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While the current account balance of India slipped into a surplus of $5.7 billion, equivalent to.6 per cent of GDP during the January-March quarter of 2023-24, compared with a $8.7 billion deficit or 1 per cent of GDP in the previous quarter, October-December, and a $1.3 billion deficit or.2 per cent of GDP in Q4: 2022-23—both indicative of improved macro-economic conditions.

This caused a merchandise trade deficit of USD 50.9 bln in Q4 2023-24 against USD 52.6 bln a year ago. Services exports rose 4.1% year-on-year in the same quarter on the back of higher exports of software, travel and business services.

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Receipts from services resulted in net inflows of USD 42.7 bln in Q4 2023-24 as against USD 39.1 bln a year ago that contributed to the current account surplus.

Private transfer receipts surged to $32.0 billion from a year-ago level from an increase of 11.9%, mostly due to remittances of Indian workers abroad.

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The net outfl‐ ow on the primary income account including the payment of investment income surged to $14.8 billion from $12.6 billion a year earlier.

Net FDI inflows in the financial account declined to US$ 2.0 billion in Q4 2023-24 from US$ 6.4 billion in the same quarter of previous year; foreign portfolio investment turned positive by US$ 11.4 bln in Q4 2023-24 from a net out­flow of US$ 1.7 bln in Q4 2022-23.

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Exterior commercial borrowings to India were $2.6 billion in Q4 2023-24, up from $1.7 billion a year ago. Net inflows of nonresident deposits increased by $5.4 billion in Q4 2023-24 from $3.6 billion in Q4 2022-23.

Taken together, Indian foreign exchange reserves rose by $30.8 bln in Q4 2023-24, compared with the $5.6 bln rise seen in the same quarter last year.

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Read also | NRIs Demonstrate Growing Confidence in Indian Economy with $1 Billion Deposited in April

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