India’s Current Account Deficit (CAD) for the first quarter of FY25 widened marginally to USD 9.7 billion (1.1% of Gross Domestic Product) as opposed to USD 8.9 billion (1% of GDP) in the same period during FY24.
This widening has been primarily attributed to a rise in merchandise trade deficit to USD 65.1 billion during the first quarter as opposed to a deficit of USD 56.1 billion during April-June of the previous financial year, according to RBI data. Services exports have seen a year-on-year increase across major categories such as computer services, business services, travel services and transportation services.
In the last quarter of the previous financial year, India’s current account had a surplus of USD 4.6 billion (0.5% of GDP).
A current account deficit is indicative of the fact that a country’s imports are higher than its exports. Developing economies like India often have a CAD while developed economies have a current account surplus which means that their exports are higher than their imports. A CAD is not necessarily negative because developing economies often borrow from international agencies and other nations to support their growth which also contributes to the deficit, but is likely to be beneficial for the economy in the long term.
At the same time, private transfer receipts, primarily representing remittances by Indians employed overseas, increased to USD 29.5 billion during April-June 2024 as compared to USD 27.1 billion during the first quarter of FY24. Similarly, non-resident deposits (NRI deposits) recorded net inflows of USD 4 billion, higher than last year’s USD 2.2 billion during the same period.
Experts expect this percentage to sustain owing to a spike in gold imports after the customs duty cut announced during the Union Budget as well as fluctuations in oil prices. However, following the Fed Rate cuts announced in September 2024, they also see capital flows easing in the coming months.
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