Full-year deficit narrows to 0.6% of GDP amid strong services
India recorded a current account surplus of $13.5 billion in the January-March 2025 quarter, equivalent to 1.3% of GDP, the Reserve Bank of India reported. This marks a significant improvement from the $4.6 billion surplus (0.5% of GDP) in the same quarter of the previous year and a sharp reversal from the $11.3 billion deficit seen in Q3 FY2025.
For the full fiscal year 2024-25, the current account deficit narrowed to $23.3 billion, or 0.6% of GDP, compared to $26 billion (0.7% of GDP) in FY2023-24. The decline was largely driven by higher net invisibles receipts, especially from the services sector.
Trade and services performance
The merchandise trade deficit for Q4 FY2025 stood at $59.5 billion, up from $52 billion in the same quarter a year earlier. However, it showed improvement from the $79.3 billion recorded in Q3 FY2025. Net services receipts jumped to $53.3 billion from $42.7 billion in Q4 FY2024, fueled by strong growth in business and computer services exports.
Aditi Nayar, Chief Economist at ICRA, noted that the larger-than-expected Q4 surplus was driven by a surprise dip in primary income outflows. “This led to the unexpected narrowing in the CAD to 0.6% of GDP in FY2025 from 0.7% in FY2024,” she said.
Financial flows under pressure
On the capital side, foreign direct investment (FDI) recorded a modest net inflow of $0.4 billion in Q4, compared to $2.3 billion a year earlier. For the full year, net FDI dropped sharply to $1 billion from $10.2 billion in FY2024.
Foreign portfolio investments (FPI) registered a net outflow of $5.9 billion in Q4 FY2025, reversing from an $11.4 billion inflow a year ago. Annual FPI inflows also declined significantly to $3.6 billion from $44.1 billion.
External commercial borrowings (ECBs) showed strength with $7.4 billion in net inflows, up from $2.6 billion in the same quarter last year. Meanwhile, NRI deposits fell to $2.8 billion in Q4 FY2025, from $5.4 billion a year ago.
FX reserves rise, outlook stable
India’s foreign exchange reserves rose by $8.8 billion in Q4 FY2025 on a balance of payments basis, a smaller accretion than the $30.8 billion increase recorded in Q4 FY2024.
Looking ahead, ICRA expects the current account deficit to average around 1% of GDP in FY2026, assuming crude oil prices hover around $70 per barrel. “This is eminently manageable despite global uncertainties,” Nayar said.