September 30th 2024.
Mumbai: The Reserve Bank of India announced on Monday that the country's current account deficit has slightly widened to $9.7 billion or 1.1% of the GDP in the period of April-June 2024. This is a small increase from the previous year's deficit of $8.9 billion or 1% of the GDP.
The current account deficit is a crucial indicator of the country's external sector strength. It comes after a surplus of $4.6 billion or 0.5% of GDP was recorded in the preceding quarter of January-March. The RBI attributed the year-on-year widening of the current account deficit to an increase in the merchandise trade gap, which was recorded at $65.1 billion in the first quarter of FY25, compared to $56.7 billion in the same period of the previous year.
The RBI also reported that net services receipts have increased to $39.7 billion in the quarter under review from $35.1 billion in the same period a year ago. This growth can be attributed to increases in computer services, business services, travel services, and transportation services.
However, there has been a significant decrease in the net foreign portfolio investment, which went down to $0.9 billion from $15.7 billion in the previous year. The inflow of external commercial borrowings has also decreased to $1.8 billion in the first quarter, compared to $5.6 billion in the same period of the previous year.
On a positive note, there has been an increase in private transfer receipts, which is an indicator of remittances from the diaspora. In the first quarter of FY25, private transfer receipts totaled $29.5 billion, compared to $27.1 billion in the same period of the previous fiscal year.
The RBI also reported an increase in net foreign direct investment inflows, which totaled to $6.3 billion in the first quarter, compared to $4.7 billion in the previous year. However, there has been a rise in the net outgo on the primary income account, which includes payments of investment income. This totaled to $10.7 billion in the first quarter, compared to $10.2 billion in the previous year.
In terms of non-resident deposits, there has been an increase in net inflows, which totaled to $4 billion in the first quarter, compared to $2.2 billion in the same period of the previous year. On a balance of payments basis, there has been an increase in the foreign exchange reserves, which added $5.2 billion in the first quarter of FY25, compared to $24.4 billion in the first quarter of FY24.
Overall, the current account deficit has slightly increased, but there have been some positive developments in terms of net services receipts, private transfer receipts, and net foreign direct investment inflows.
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