Trends & Tides – Balance of Payments Q3FY24

India’s Current Account Deficit (CAD) marginally narrowed to 1.2% of GDP in Q3FY24 from 1.3% in the previous quarter. The current account remained stable as the rise in services exports and inward remittances offset the higher merchandise trade deficit. The merchandise trade deficit rose in Q3FY24 primarily due to the higher petro deficit. The core deficit (which excludes petro and valuables) increased due to higher coal imports. However, services witnessed a broad-based improvement.

The capital account surplus improved due to higher FDI, FPI (equity and debt), and banking capital net inflows. It increased to 1.9% of GDP in Q3FY24 from 1.5% in the previous quarter.

The Balance of Payments (BoP) surplus increased to US$6.0 bn from US$2.5 bn in the previous quarter due to a higher capital account surplus in Q3. Forex reserves, however, increased by US$35 bn in Q3 due to a US$29 bn valuation gain during the quarter.

The CAD is expected to be around 1.3% of GDP in FY25. Potential risks to the outlook stem from a fragile external environment and geopolitical conflicts.

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