India scores a current account surplus in Q4, but may return to a deficit in Q1
India's current account recorded a surplus of 1.3% of GDP in Q4 FY25, with a surplus of $13.5 billion. But analysts predict a deficit of about 1.2% of GDP in Q1 FY26 due to global economic uncertainties.
Mumbai: After three deficit quarters, India reported a current account surplus for the January-March period, but is expected to slip back into a deficit in the ongoing first financial quarter of 2025-26.
India recorded a current account surplus of 1.3% of gross domestic product for the fourth quarter of FY25, as against a deficit of 1.1% for the October-December quarter, data released by the Reserve Bank of India on Friday showed.
The surplus improved to $13.5 billion in the latest March quarter from a surplus of $4.6 billion in the same period last year. In the December quarter, India recorded a current account deficit of $11.3 billion.
The current account measures the flow of goods, services and investments into and out of the country. A surplus indicates more money entered India than it went out, signalling improved external stability. A deficit would have added pressure on the rupee and inflated costs for businesses.
Economists said a significant jump in services receipts and strong remittances drove the current account surplus in the fourth quarter. While they had estimated a surplus in the current account balance, the extent of it came as a surprise.
Per RBI data, net services receipts increased to $53.3 billion in the latest fourth quarter from $42.7 billion a year ago, and services exports rose in major categories such as business services and computer services. That apart, personal transfer receipts, primarily comprising remittances by Indians employed overseas, rose to $33.9 billion from $31.3 billion a year ago.
“We had thought that a steep drop in oil prices in the January to March quarter would weigh sharply on remittances, but that did not happen as much,” said Kanika Pasricha, chief economic advisor, Union Bank of India.
When oil prices fall, remittances into oil-importing countries such as India decline as economic activity loses steam in oil-producing nations where migrants work.
“While the spike in services exports was well known, the pickup in remittances has been slightly more than our estimates. Hence, the current account surplus we were expecting at around the $9.5 billion mark has come in higher at $13.5 billion,” Pasricha added.
Back to a deficit
Aditi Nayar, chief economist and head of research and outreach at rating agency Icra Ltd, said while India expectedly reported a seasonal current account surplus for the fourth quarter, the size of it overshot expectations amid a surprise dip in primary income outflows.
“This led to the unexpected narrowing in the current account deficit to 0.6% of GDP in FY25 from 0.7% in FY24,” said Nayar. For FY25, the current account deficit was at $23.3 billion, lower than $26 billion FY24, primarily due to higher net invisible receipts.
“The structural strengthening of services surplus and a seasonal decline in goods trade deficit led to the surplus in Q4,” said Dhiraj Nim, economist at ANZ Banking Group.
That said, economists expect India’s current account balance to swing back to a deficit in the first quarter of FY26.
Amid expectations of a wider merchandise trade deficit and a moderation in first-quarter services trade surplus compared with the fourth quarter, Icra expects India’s current account to revert to a deficit in the ongoing quarter, printing at around 1.3% of GDP, Nayar said.
“We foresee India’s current account deficit to average 1% of GDP in FY2026, assuming an average crude oil price of about $70/barrel for the fiscal (year), which is eminently manageable in spite of the prevailing global uncertainties,” she added.
For FY25, services exports more than offset the oil deficit, signalling favourable external sector dynamics, said Pasricha of Union Bank of India, adding that this offset the impact of factors such as muted foreign direct investment.
India recorded a net FDI inflow of $0.4 billion in the fourth quarter, as compared to an inflow of $2.3 billion in the same period last year, RBI data show.
Merchandise trade deficit at $59.5 billion in the latest fourth quarter moderated from $79.3 billion in the preceding three months, but was higher than the shortfall of $52 billion in the year-earlier fourth quarter.