India's Current Account Deficit Marginally Widens to $9.7 Billion in Q1 FY2024-25: RBI

Mumbai, Oct 1 (KNN) India’s current account deficit (CAD) widened slightly to USD 9.7 billion, or 1.1 per cent of GDP, in the first quarter of FY2024-25, compared to USD 8.9 billion (1 per cent of GDP) in the same period a year ago, according to data released by the Reserve Bank of India (RBI) on Monday.

This represents a shift from the surplus of USD 4.6 billion (0.5 per cent of GDP) recorded in Q4 FY2023-24.

The surplus for Q4 FY2023-24 was revised down from the previously reported USD 5.7 billion due to adjustments in merchandise import data, highlighting the impact of higher import figures on the nation's external balance.

The year-on-year (YoY) widening of the CAD was primarily attributed to an increase in the merchandise trade deficit, which expanded to USD 65.1 billion in Q1 FY2024-25, up from USD 56.7 billion in Q1 FY2023-24.

The RBI noted that both oil and gold imports, along with rising non-oil imports, contributed to this widening trade gap.

On a more positive note, net services receipts grew to USD 39.7 billion from USD 35.1 billion a year earlier, driven by strong exports across major sectors, including IT services, business services, and travel.

Private transfer receipts, primarily remittances from overseas workers, also rose to USD 29.5 billion from USD 27.1 billion YoY.

In the financial account, net foreign direct investment (FDI) inflows increased to USD 6.3 billion, up from USD 4.7 billion in the corresponding period last year.

However, foreign portfolio investment (FPI) inflows moderated sharply to USD 0.9 billion from USD 15.7 billion in Q1 FY2023-24. External commercial borrowings (ECBs) also fell to USD 1.8 billion from USD 5.6 billion YoY.

Despite these shifts, India added USD 5.2 billion to its foreign exchange reserves during the quarter, though this was significantly lower than the USD 24.4 billion added in Q1 FY2023-24.

Commenting on the results, Madan Sabnavis, Chief Economist at Bank of Baroda, noted that while the CAD had widened slightly, it remained within manageable limits.

"The CAD at 1.1 per cent of GDP is fairly comfortable, and we may see it hover around 1.5 per cent for the year," Sabnavis said, attributing the trade deficit primarily to higher oil and gold imports.

He also highlighted increased FDI inflows and anticipated stronger FPI flows as debt market inclusion boosts confidence.

(KNN Bureau)