India’s CAD moderates to $11.2 bn in Q2 FY25 on strong services exports

India’s current account deficit (CAD) moderated marginally to $11.2 billion (1.2 per cent of GDP) in Q2 FY2024-25 from $11.3 billion ( or 1.3 per cent of GDP) in Q2 FY2023-24, primarily on account of a rise in net services receipts, remittances, and improved capital inflow, according to the RBI's balance of payments data for Q2 FY25. The CAD was recorded at $9.7 billion or 1.1% of India's GDP in the previous quarter.

The CAD moderated amid a higher merchandise trade deficit, which increased to $75.3 billion in Q2 FY2024-25 from $64.5 billion in Q2:2023-24.

Services receipts grew significantly, especially in sectors like IT and travel. Net services receipts surged to $44.5 billion in Q2 FY25 from $39.9 billion a year ago.

The RBI data says net outgo on the primary income account, primarily reflecting payments of investment income, decreased to $9.5 billion in Q2 FY 25 from $11.6 billion in Q2 FY24.

The net foreign direct investment (FDI) recorded an outflow of $2.2 billion in Q2:2024-25 as compared with an outflow of $0.8 billion in the year-ago period. In a positive development, the net inflows under foreign portfolio investment increased to $19.9 billion in Q2 FY25 from $4.9 billion in Q2 FY24, which reflects strong investor sentiments.

Private transfer receipts or remittances rose to $31.9 billion in the said quarter from $28.1 billion in Q2:2023-24. It mainly represents remittances by Indians employed overseas.

There was an accretion of $18.6 billion to the foreign exchange reserves in Q2, which was higher than $2.5 billion in the same quarter last year, which shows macroeconomic stability.

Balance of Payments data (April-Sept 2024)

India’s current account deficit during the first half of the fiscal year surged to $21.4 billion (1.2 per cent of GDP) from $20.2 billion (1.2 per cent of GDP) in the same period last year.

Net invisible receipts saw a significant rise to $119 billion from $101 billion a year ago, primarily on account of higher net services receipts.

The period saw the net FDI inflows at $4.4 billion, higher than $3.9 billion in the fiscal period in the previous year.

Foreign portfolio investors or FPIs recorded net inflows of $20.8 billion in H1:2024-25, marginally higher as compared with net inflows of $20.7 billion a year ago. The first half of the fiscal year saw an accretion of $23.8 billion to the foreign exchange reserves.