India’s current account deficit eases despite ballooning merchandise trade deficit

India’s current account deficit (CAD) showed a modest decline to $11.2 billion (1.2 per cent of GDP) in the second quarter of the current financial year (2024-25) from $11.3 billion (1.3 per cent of GDP) in the second quarter of the previous fiscal (July-September 2023-24), preliminary data released by the finance ministry showed.

Incidently, the decline in CAD comes on significant increase in the country’s merchandise trade deficit to $75.3 billion in July-September 2024-25 from $64.5 billion in Q2 FY 24.

This was marginally offset by a decline in services trade deficit. Net receipts from services trade increased to $44.5 billion in Q2 of FY25 from $39.9 billion in Q2 FY23-24.

Net outflow of primary income, mainly on account of investment funds, declined to $9.5 billion in Q2 of FY25 from $11.6 billion in Q2 FY24.

Receipts from private fund transfers, mainly on account of remittances by overseas Indians, increased to $31.9 billion in Q2 FY25 from $28.1 billion in Q2 FY24.

Foreign investors withdrew a record $2.2 billion in Q2 FY25 against $0.8 billion in the corresponding period of 2023-24.

Foreign portfolio investments increased to $19.9 billion in Q2 FY25 from $4.9 billion in Q2 FY24.

External commercial borrowings (ECBs) increased to $5 billion in Q2 FY25, against $1.9 billion in Q2 FY24.

Deposits by non-resident Indians (NRIs) shot up to a record $6.2 billion, compared to $3.2 billion a year ago.

Foreign exchange reserves with the Reserve Bank of India (RBI) increased by $18.6 billion (on a BoP basis) in Q2 FY25 against $2.5 billion added in Q2 FY24.

For fiscal first half (April-September 2024-25) India’s current account deficit stood at $21.4 billion (1.2 per cent of GDP) compared with $20.2 billion (1.2 per cent of GDP) in April-September 2023-24.

Net inflows of invisibles stood higher at $119 billion in H1 FY25, compared with $101 billion a year ago, primarily due to higher prices of services.

Net FDI inflows stood higher at $4.4 billion in H1 FY25 compared with $3.9 billion in H1 FY24.

Net foreign portfolio investments stood at $20.8 billion in H1 FY25 compared with $20.7 billion a year ago.

India added $23.8 billion to its foreign exchange reserves in H1 FY25 against net accretion of $23.8 billion in H1 FY24.