India’s current account recorded a deficit of 1.1% of GDP in Q1FY25, compared to a surplus of 0.5% in the previous quarter and a deficit of 1% in Q1FY24. The current account worsened due to a larger merchandise trade deficit and a lower surplus from services and remittances.

The merchandise trade deficit increased in Q1FY25 due to higher core and petroleum deficits. Meanwhile, the services surplus declined because of net travel outflows.

The capital account surplus decreased to US$14.4 bn in Q1FY25, down from US$25.6 bn in the previous quarter and US$33.8 bn in Q1FY24. This decline was due to lower FPI inflows, which offset the improvement in FDI flows.

Overall, the Balance of Payments surplus decreased to US$5.2 bn from US$30.8 bn in the previous quarter and US$24.4 bn in Q1FY24, driven by a deficit in the current account and a lower capital account surplus. However, forex reserves increased by US$5.6 bn in Q1 due to a US$ 0.6 bn valuation gain during the quarter.

The current account deficit is expected to be around 1% of GDP in FY25. Potential risks to the outlook stem from geopolitical conflicts, which could lead to higher crude prices and a fragile external environment.

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