Opinion
Mint Quick Edit | India is comfortably placed on the external front
Summary
- RBI data shows India’s current account deficit widened to 1.1% of GDP in 2024-25’s first quarter. This suits us fine. Barring geopolitical shocks, we can expect a deficit level that’ll help keep the economy largely steady on the external front.
Given India’s troubles with the current account in its not-so-distant history, it’s comforting that it is now well in control. Going by data released by the Reserve Bank of India (RBI), the deficit on this account stood at 1.1% of gross domestic product (GDP) in the three months ended in June.
From the year-ago quarter’s 1% level, this marks a slight widening. But in the preceding three months ended in March, India had a surplus of 0.5%. So, on a rolling basis, the move is substantial, although hardly a surprise, given weakening demand for our exports globally.
Also read: India’s current account deficit widens to 1.1% of GDP to $9.7 billion in Q1FY25 from surplus in previous quarter: RBI
The figure is mostly made up of our trade gap, as net income from abroad isn’t much. And at 1.1% of GDP, it’s well in control. That we’ve exited a surplus is also a relief from another viewpoint of what that gap reflects.
As a matter of macro accounting, the current account deficit equals the gap between domestic savings and investment, with inflows from abroad playing the bridge. So, a surplus suggests an under-invested economy.
From here on, barring geopolitical shake-ups, we could expect a deficit level that’ll help keep the economy largely steady on the external front. That capital inflows are reasonably good helps as well.
