India's Current Account Deficit Remains Steady Amid Rising Foreign Inflows: Crisil Analysis
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New Delhi, Dec 30 (NationPress) Even though India’s merchandise trade deficit has come under some strain, strong services exports and robust remittance flows are anticipated to maintain the country’s current account deficit (CAD) in a secure range for the current financial year (FY 2024-25), according to a report from Crisil released on Monday.
“We project CAD to be around 1.0 percent of GDP in fiscal 2024-25, compared to 0.7 percent last year. Additionally, the repercussions of geopolitical issues will be closely monitored,” the report noted.
The Crisil report underscores that India’s CAD was nearly unchanged at $11.2 billion (1.2 percent GDP) in the second quarter (July-September) of fiscal year 2024-25, in contrast to $11.3 billion (1.3 percent of GDP) in the same quarter the previous year. However, sequentially, this figure, which indicates a nation’s external payment condition, widened slightly from $10.2 billion (1.1 percent of GDP) in the first quarter.
A significant figure, CAD amounted to $21.4 billion (1.2 percent of GDP) in the first half of fiscal 2025, compared to $20.2 billion (1.2 percent of GDP) in the corresponding period last year.
Even with a moderated CAD and increased financial inflows, the rupee depreciated to 83.8/$ in the second quarter (Q2) of this fiscal from 82.7/$ in Q2 of 2024, as highlighted by the report.
The nation's foreign exchange reserves have diminished since, primarily due to interventions by the Reserve Bank of India (RBI) in the forex market to stabilize the rupee. From $692.3 billion at the end of Q2, India's forex reserves decreased to $644.4 billion as of December 20, 2024, the report indicated.
The report pointed out that net inflows from foreign portfolio investors reached $19.9 billion, a significant rise from $4.9 billion during the same quarter of the previous financial year. Equity inflows were $10.7 billion, compared to $3.6 billion previously. Debt inflows totaled $9.1 billion, contrasting with $1.7 billion in Q2 of fiscal 2024.
Other investments surged to $18.4 billion from $10.6 billion in the second quarter of 2024. NRI deposits rose to $6.2 billion from $3.2 billion, while net external commercial borrowings (ECBs) increased to $5 billion from $1.9 billion outflows last year. However, trade credit and advances surplus declined to $3.4 billion from $5.4 billion in Q2 of fiscal 2024.
Net financial inflows grew to 1.3 percent of GDP, compared to 1.2 percent in Q2 of fiscal 2024. The accumulation to forex reserves increased to $18.6 billion from $2.5 billion in Q2 of fiscal 2024, the report noted.
However, despite the overall rise in financial flows in Q2 fiscal 2025, net foreign direct investment (FDI) experienced outflows for the first time since Q2 fiscal 2024, nearly tripling to $2.2 billion from $0.8 billion.
Additionally, outflows from financial derivatives rose to $5.5 billion from outflows of $1.9 billion in the same quarter the previous year. Conversely, net FPI inflows of $19.9 billion, the highest since Q3 fiscal 2021, were recorded, as stated in the report.
