India's Current Account Deficit Marginally Widens to $9.7 Billion in April-June 2024: RBI Report The RBI attributed the year-on-year (YoY) rise in the CAD to an increase in the merchandise trade gap, which swelled to $65.1 billion in Q1 FY25 compared to $56.7 billion in the corresponding period a year ago.
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India's current account deficit (CAD) widened slightly to $9.7 billion, or 1.1 per cent of the GDP, in the first quarter of FY25 (April-June 2024), as per data released by the Reserve Bank of India (RBI) on Monday. This marks an increase from $8.9 billion, or 1 per cent of GDP, in the same period last year. A current account deficit (CAD) is when a country's money going out exceeds the money coming in, due to a combination of factors including trade, investments and remittances. The CAD figure follows a surplus of $4.6 billion, or 0.5 per cent of GDP, recorded in the preceding quarter (January-March 2024).
External commercial borrowings (ECBs), a key indicator of corporate financing from overseas markets, fell to $1.8 billion in Q1 FY25, compared to $5.6 billion in the previous year. Remittances from the Indian diaspora, captured under private transfer receipts, saw an uptick, increasing to $29.5 billion from $27.1 billion in the year-ago period. This reflects a strong rise in money sent home by non-resident Indians (NRIs). Additionally, net inflows into NRI deposits amounted to $4 billion, significantly higher than the $2.2 billion seen in the same quarter last year.
The RBI attributed the year-on-year (YoY) rise in the CAD to an increase in the merchandise trade gap, which swelled to $65.1 billion in Q1 FY25 compared to $56.7 billion in the corresponding period a year ago. Despite the widening trade deficit, the services sector displayed robust growth during the quarter. Net services receipts rose to $39.7 billion, up from $35.1 billion in the same period last year. The RBI highlighted notable gains in key sectors, including computer services, business services, travel, and transportation services.
However, the net foreign portfolio investment (FPI) saw a significant decline, with inflows dropping sharply to $0.9 billion from $15.7 billion a year ago. In contrast, net foreign direct investment (FDI) inflows increased to $6.3 billion from $4.7 billion during the same period, indicating a steady flow of long-term investments into the country.
On a balance of payments (BoP) basis, India saw an accretion of $5.2 billion to its foreign exchange reserves in Q1 FY25, although this was much lower than the $24.4 billion recorded in the corresponding quarter of FY24. The RBI's report underscores the ongoing dynamics within India's external sector, with a widening trade gap offset by resilient service exports and FDI inflows.
