Trends & Tides – Balance of Payments Q4FY24

India’s current account turned to a surplus of 0.6% of GDP in Q4FY24 from a deficit of 1.0% in the previous quarter. The current account improved due to a steep correction in the merchandise trade deficit. The merchandise trade deficit fell in Q4FY24 due to a decrease in the core deficit (which excludes petro and valuables), driven by the chemical and engineering goods sectors. However, the services surplus declined because of a weaker surplus in business services during Q4.

The capital account surplus improved to US$24.5 bn in Q4FY24 from US$15 bn in the previous quarter, primarily due to higher external commercial borrowings and lower repayment of trade credit. Net FDI and FPI flows were lower during Q4 compared to the previous quarter.

Overall, the Balance of Payments (BoP) surplus increased to US$30.8 bn from US$6.0 bn in the previous quarter, driven by a turnaround in the current account and a higher capital account surplus. However, forex reserves increased by US$24 billion in Q4 due to a US$6.8 billion valuation loss during the quarter.

The current account deficit is expected to be around 1% of GDP in FY25. Potential risks to the outlook stem from a fragile external environment and geo-political conflicts.

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