India turns back to a current account surplus in Mar 2024

Deepak Shenoy

India turns back to a current account surplus in Mar 2024

After 2021, we’ve seen the first quarter when India’s current account turned a surplus for the quarter. This has been very interesting as the deficit was very low in the last few quarters.

Gold is a big portion of the current account. In my view, it’s a financial investment mostly so we should remove it from the current account. If you do that, we’ve been having five consecutive quarters of a surplus 🙂

Massive: The Trade Deficit Narrows

We’ve seen a major drop in net import of goods, and a slight drop in export of services, in the March quarter. That has brought the trade deficit to just $8 bn. Remember India imports goods (a trade deficit) and exports services (IT services).

There’s a bit of a slowdown in IT exports. This is probably related to a drop in US tech spending and some of the impact of reorganization as interest rates rise in the US and AI provides a bit of a cushion.

Remittances: Still Strong

Indians abroad send back money to their families and that continues to remain a strong inflow, hitting $107bn for the year. (India gets the most in the world).

Investment flows: FDI still weak, FPIs continue

FDI remains weak on a net bases, barely at $2bn. This is probably going to be negative as companies like Hyundai and a few other MNCs sell their shares in India.FPI though, saw a $11bn net investment in the quarter into both stocks and bonds.

Keeping the surplus up

While the surplus is a bit of a surprise, it’s also natural as the world contracts in trade and investment flows remain strong. Remittances have massively swept inflows into India.

The RBI has bought some $30 bn in the quarter just to retain the rupee at the 83 levels. They don’t seem to want the rupee to appreciate, but it’s probably the only way ahead considering future inflows from FPIs into equities and into bond indexes.

Meanwhile, as India migrates away from crude oil based products slowly, we will see the trade deficit remain shallow. Let’s hope for two things:

  • Hope the RBI allows the rupee to appreciate back to below 80, and
  • Hope the surplus situation continues on the current account

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