India’s current account balance experienced a significant turnaround in the fourth quarter of the financial year 2023-24, registering a surplus of USD 5.7 billion, equivalent to 0.6 per cent of GDP, according to the Reserve Bank of India. This was a marked improvement from the previous quarter, which saw a deficit of USD 8.7 billion, or 1.0 per cent of GDP, and a substantial increase from the same quarter in the previous year, when the surplus was USD 1.3 billion, amounting to 0.2 per cent of GDP. One of the key factors contributing to this surplus was the reduction in the merchandise trade deficit, which stood at USD 50.9 billion in Q4 of FY 2023-24, down from USD 52.6 billion in the corresponding quarter of the previous year.
According to the RBI data, this reduction in the trade deficit was supported by a notable increase in services exports, which grew by 4.1 per cent year-on-year in the fourth quarter. The growth in services exports was primarily driven by rising exports in software, travel, and business services sectors. This resulted in net services receipts increasing to USD 42.7 billion, up from USD 39.1 billion a year earlier, significantly contributing to the current account surplus. The overall current account balance remained positive due to other contributing factors as well, including a substantial increase in private transfer receipts, predominantly remittances by Indians working overseas, which amounted to USD 32.0 billion in Q4 FY 2023-24, marking an 11.9 per cent increase over the previous year’s level.
In the financial account, net foreign direct investment (FDI) flows were recorded at USD 2.0 billion in the fourth quarter of 2023-24, a decline compared to USD 6.4 billion in the same period the previous year. However, there was a significant recovery in foreign portfolio investment, with a net inflow of USD 11.4 billion in Q4 FY 2023-24, compared to a net outflow of USD 1.7 billion in Q4 FY 2022-23. Additionally, net inflows under external commercial borrowings to India increased to USD 2.6 billion in the fourth quarter of 2023-24, up from USD 1.7 billion a year earlier. Non-resident deposits also showed improvement, with a higher net inflow of USD 5.4 billion compared to USD 3.6 billion in Q4 FY 2022-23.
The RBI highlighted that these factors collectively contributed to the current account surplus in Q4 FY 2023-24, indicating a period of financial stability and positive economic indicators for India. The data underscored the strong performance of India’s service exports and the significant role of remittances in supporting the country’s external balance. The increase in services exports, along with improvements in FDI, foreign portfolio investment, external commercial borrowings, and non-resident deposits, all played a crucial role in achieving the current account surplus. Overall, the data reflects a positive outlook for India’s economic performance and external balance in the fourth quarter of the financial year 2023-24.
