Services exports save the day for India’s current account deficit in September quarter

Mumbai: A rise in services exports helped narrow India's current account deficit (CAD) in the September quarter, although this marked the second consecutive quarterly deficit after hitting a surplus in the final three months of FY24.

Reserve Bank of India (RBI) data released on Friday showed CAD during the quarter at $11.2 billion or 1.2% of GDP, compared with $11.3 billion or 1.3% of GDP a year earlier.

India had logged a CAD of $9.7 billion, or 1.1% of GDP, in April-June this year. In the three months prior to that—the fourth quarter of 2023-24 (January-March 2024)—India had registered its first current account surplus in about four years due to a narrowing in merchandise trade deficit.

A Blomberg survey of 14 economists had estimated a deficit of $15.3 billion for the second quarter.

Services exports rose across all major categories such as computer, business, travel and transportation, fetching net receipts of $44.5 billion, up from $39.9 billion a year ago. However, merchandise trade deficit widened to $75.3 billion from $64.5 billion a year earlier.

A current account deficit develops when a country spends more on imports than it earns from exports, essentially spending more money abroad than it receives. Data on CAD is closely watched as it provides insights into a country's competitiveness, economic growth prospects, and overall economic health.

"Looking ahead, the initial estimate of a record-high trade deficit in November 2024 could well bloat the current account deficit to 2.5-2.7% of GDP in the current quarter. For FY25 as a whole, the current account deficit may print around 1.1-1.2% of GDP,” said Aditi Nayar, chief economist at ratings firm Icra Ltd.

Also read | Why a current account deficit is good for India

Balance of payments surplus increases

India's goods trade deficit hit a record in November as gold imports jumped fourfold, while exports fell due to weaker global demand. The widening goods trade deficit comes at a time of slowing economic growth and urban consumption, persistent inflation, and a falling currency.

"With the November trade deficit widening sharply to $37.8 billion on record​-​high gold imports, CAD is expected to worsen further in Q3 FY25. We continue to see FY25 CAD at 1.4% of GDP ($55bn),"Barclays said in a report.

Private transfer receipts, which are mainly remittances by Indians working overseas, rose to $31.9 billion from $28.1 billion a year ago.

India's balance of payments (BoP) stood at a surplus of $18.6 billion in Q2, compared with a surplus of $2.5 billion in the year-ago period, the RBI said.

During the quarter, net foreign portfolio investment jumped to $19.9 billion from $4.9 billion a year ago, while net foreign direct investment inflows increased to $2.2 billion against an outflow of $0.8 billion a year ago.

Net inflows under external commercial borrowings fell to $1.8 billion during the first quarter, lower than the $5.6 billion registered in the corresponding period a year ago.