In the last quarter of the financial year 2024-25 (January to March), India earned more from the world than it spent. This resulted in a current account surplus of $13.5 billion, which is about 1.3% of the country's GDP, as per the data put forth by the Reserve Bank of India (RBI) today.

This is a big improvement compared to the same quarter last year (Q4 of 2023-24), when the surplus was much smaller at $4.6 billion (0.5% of GDP), and the previous quarter (Q3 of 2024-25), when India had a deficit of $11.3 billion (meaning it spent more than it earned), equal to 1.1% of GDP.

"India’s current account balance recorded a surplus of $13.5 billion (1.3% of GDP) in Q4:2024-25 as compared with $4.6 billion (0.5% of GDP) in Q4:2023-24 and against a deficit of $11.3 billion (1.1% of GDP) in Q3:2024-25," RBI noted.

"Merchandise trade deficit at $59.5 billion in Q4:2024-25 was higher than $52.0 billion in Q4:2023-24. However, it moderated from $79.3 billion in Q3:2024-25. Net services receipts increased to $53.3 billion in Q4:2024-25 from $42.7 billion a year ago. Services exports have risen on a y-o-y basis in major categories such as business services and computer services," the central bank said.

Aditi Nayar, Chief Economist & Head - Research & Outreach at ICRA Limited, said, "Amid expectations of a widening in the merchandise trade deficit as well as a moderation in the services trade surplus in Q1 FY2026 vis-à-vis Q4 FY2025, we expect the current account to revert to a deficit in the ongoing quarter, printing at ~1.3% of GDP. We foresee India's current account deficit to average 1% of GDP in FY2026, assuming an average crude oil price of ~$70/barrel for the fiscal, which is eminently manageable in spite of the prevailing global uncertainties."

Current account concerns

In the full financial year 2024-25, India’s current account deficit, which shows how much more the country spent than it earned in its dealings with the rest of the world, stood at $23.3 billion, or 0.6% of GDP. This was slightly better than the previous year (2023-24), when the deficit was $26 billion (0.7% of GDP). The improvement was mainly because India earned more from invisible sources like services (such as IT exports) and personal transfers (like money sent home by Indians working abroad).

Rajani Sinha, Chief Economist, CareEdge Ratings, says, “India’s full-year current account deficit was contained at 0.6% of GDP in FY25 aided by upbeat services trade surplus and transfers offsetting the impact of a higher merchandise trade deficit. Exports of software and business services remained the bright spots logging double-digit growth. The capital account inflows narrowed significantly, weighed by subdued net FDI and FPI inflows as well as banking capital outflows."

However, foreign direct investment (FDI) coming into the country dropped sharply, from $10.2 billion in 2023-24 to just $1.0 billion in 2024-25.

According to RBI data, foreign portfolio investors (FPIs) recorded a net inflow of $3.6 billion in 2024–25, a sharp decline from $44.1 billion in the previous year. During the same period, India’s foreign exchange reserves saw a depletion of $5.0 billion on a Balance of Payments (BoP) basis.

This indicates that in FY 2024–25, FPIs, who invest in Indian equities and bonds, brought in just $3.6 billion—significantly lower than the $44.1 billion invested in 2023–24. Simultaneously, India’s foreign exchange reserves declined by $5.0 billion on a BoP basis, suggesting that after accounting for all foreign currency inflows and outflows, the country had to dip into its reserves to bridge the gap.

"Overall, upbeat services trade surplus and healthy remittances are likely to remain supportive of the current account position. Given this background, we project the current account deficit to be at 0.9% of GDP in FY26. On the capital account front, we expect escalating economic uncertainty, tariff tensions and financial market volatility to pose as headwinds for the FDI and FPI flows. Overall, we expect the BoP to record a marginal surplus in FY26. Additionally, the risk posed by the geopolitical disruptions remain a key monitorable for the oil price outlook and India’s overall external position,” said Sinha.