India current account balance to record surplus of $6bn in Q4FY24

India’s Current Account Balance (CAB) is set to record about $ 6 billion as surplus in the final quarter of the fiscal year 2023-‘24 (FY24), according to India Ratings and Research, or Ind-Ra.

The Ind-Ra prediction for the fourth quarter of FY24, or Q4FY24, marks a notable comeback from the $10.5 billion deficit recorded in the quarter before. Although this is the first time in 10 quarters since the first quarter of FY22 that India’s CAB will witness a surplus, overall the Current Account Balance will remain in deficit at 0.6 per cent of the GDP. This is the lowest recorded since the Covid phase of FY21.

Although economic uncertainty continues to loom large over the world, the global manufacturing Purchasing Managers’ Index (PMI) has grown over the past three consecutive months, scaling 50.3 in April 2024.

Ind-Ra projects India’s merchandise exports will be worth around $112 billion in the first quarter of FY25. This would be 8 per cent more on a year-on-year (YoY) basis and the fastest in seven quarters. In the fourth quarter of FY24, merchandise exports touched a record figure of $120.4 billion at 4.9 per cent, buoyed by demand from the US, UAE, and the Netherlands. Significant exports included aircraft and spacecraft parts, telecom instruments, drug formulation, jewellery and chemicals.

Overall, the country would see a goods trade deficit of $57 billion, with India’s merchandise imports in the same period shooting up by 6 per cent year on year, and marking a $169 billion increase. In the fourth quarter of FY24, merchandise imports grew by 2 per cent year on year, mostly owing to trade in durable items as well as infrastructure and intermediate goods. Imports came down to $170.7 billion from $174.4 billion in the quarter before. There was growth in the import of gold, silver, medical instruments and electronics goods.

The CAB could see a marginal deficit in the first quarter of FY25 owing to slow growth in services exports, which would be the outcome of a high base effect and diminishing demand in the sectors of information technology (IT) and the information technology enabled services (ITES). Year on year, services trade surplus is expected to grow to $38 billion at 6.5 per cent.

The gap between the Nominal Effective Exchange Rate (NEER) and the Real Effective Exchange Rate (REER) grew bigger, with NEER witnessing decline and REER recording neither decline nor increase. The performance of NEER and REER mirrored the continuing devaluation of the rupee, too.