📷 Image Credits: Moneycontrol
India’s economic landscape is showing signs of improvement as the country’s current account deficit (CAD) has narrowed to 0.7% of the GDP in the fiscal year 2023-24, down from 2% in the previous years, according to data released by the Reserve Bank of India. The decline in CAD to $23.2 billion from $67 billion in the previous fiscal year is a positive development and signals a more favorable balance of payments. The last quarter of FY24 even showed a surplus of 0.6% of the GDP or $5.7 billion, a significant improvement from the year-ago period.
Looking ahead to FY25, economists are predicting a slight increase in CAD to above 1% levels, but they believe it will remain manageable. Chief economist Madan Sabnavis of Bank of Baroda stated that based on early trends, the CAD is expected to be between 1-1.5% of GDP, aided by steady capital inflows. This positive outlook is projected to maintain the value of the rupee against the dollar in the range of 83-84.
Furthermore, India’s inclusion in the global bond index is expected to bring in an infusion of $20-25 billion in capital, providing a boost to the country’s financial sector. The rising services exports, including software, travel, and business services, have contributed to the narrowing of the trade deficit. Notably, net services receipt in Q4:2023-24 was higher than the previous year, contributing to the surplus in the current account balance.
Remittances also saw a growth of 11.9% in the last quarter, reflecting positive trends in the economy. Additionally, portfolio investments turned positive to $11.4 billion in the same period, showing a shift towards a more favorable investment climate in India. The net FDI inflow for 2023-24 was $9.8 billion, a decrease from the previous year due to lower funds flowing from developed countries.
While challenges remain, such as the need to combat cybercrime and the ranking dip in global FDI, the overall economic outlook for India appears promising. With prudent financial management and a focus on bolstering key sectors, the country is poised for continued growth and stability in the coming years.
