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India’s CAD widens to 1.1% of GDP
Context
India’s current account deficit (CAD) has slightly increased to 1.1% of GDP, amounting to $9.8 billion in the first quarter (Q1) of FY25, up from $8.9 billion (1% of GDP) in the same period last year. This rise is primarily due to an increase in the merchandise trade deficit.
Key-highlights:
- CAD occurs when a country's imports of goods and services exceed its exports. In Q1 FY25, India recorded a merchandise trade deficit of USD 65.1 billion, compared to USD 56.7 billion in the same quarter last year.
- The country had a surplus of USD 4.6 billion (0.5% of GDP) in the previous quarter (Q4 FY24).
- Factors Influencing the CAD
- Net Service Receipts: Increased to $39.7 billion in Q1 FY25 from USD 35.1 billion a year ago, boosted by growth in service exports like computer, business, travel, and transportation services.
- Private Transfers: Remittances from Indians working abroad rose to USD 29.5 billion from USD 27.1 billion in the same quarter last year.
- Primary Income Outgo: Payments for investment income went up to USD 10.7 billion from $10.2 billion.
- Foreign Investments
- Foreign Direct Investment (FDI): Net inflows increased to USD 6.3 billion from USD 4.7 billion a year ago.
- Foreign Portfolio Investment (FPI): Moderated significantly to USD 3.9 billion from $15.7 billion.
- Other Financial Indicators
- External Commercial Borrowings (ECBs): Net inflows fell to USD 1.8 billion from USD 5.6 billion a year ago.
- Non-Resident Indian (NRI) Deposits: Increased to USD 4 billion, up from USD 2.2 billion.
- Foreign Exchange Reserves: India’s foreign exchange reserves grew by USD 5.2 billion in Q1 FY25, compared to a larger increase of USD 24.4 billion in the same quarter last year.
Fact Box: What is Current Account Deficit (CAD)?
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