India’s current account deficit has dropped to US$ 23.3 billion in FY25, down from US$ 26.0 billion in FY24. The RBI (Reserve Bank of India) shared this in its latest data release. This is a positive sign for the economy, showing better earnings from services and remittances from abroad.
Q4 Shows a Big Turnaround
In the fourth quarter of FY25, India saw a current account surplus of US$ 13.5 billion, which is 1.3% of GDP. This is a strong jump from the US$ 4.6 billion surplus in Q4 of the previous year.
Just three months ago in Q3, the country had a deficit of US$ 11.3 billion, so this turnaround is important.
Trade Still a Weak Spot
India’s merchandise trade deficit stood at US$ 59.5 billion in Q4 of FY25. It was higher than the US$ 52.0 billion a year ago, but lower than US$ 79.3 billion seen in Q3.
This means India is still importing more than it exports when it comes to goods, but the gap is shrinking.
Also Read RBI Report Shows Improvement in Govt Finances, Decline in Interest Payments
Services and Remittances Save the Day
What helped India this year was the jump in services exports and remittances. Net services receipts increased to US$ 53.3 billion from US$ 42.7 billion last year. This includes IT and business services, which continue to perform strongly.
Remittances by Indians working abroad also increased to US$ 33.9 billion, compared to US$ 31.3 billion a year ago.
This growth in “invisible” earnings made up for the trade gap and improved the overall current account balance.
FDI, FPI Show Weakness
One concern is the fall in foreign direct investment (FDI). In Q4 of FY25, net FDI inflow was just US$ 0.4 billion, compared to US$ 2.3 billion a year earlier.
Even foreign portfolio investment (FPI) saw an outflow of US$ 5.9 billion, while last year saw a net inflow of US$ 11.4 billion.
This shows foreign investor interest may be cooling, and that could affect future growth.
Forex Reserves Dip
India’s foreign exchange reserves saw a depletion of US$ 5.0 billion in FY25. In contrast, last year saw an increase of US$ 30.8 billion.
This decline is linked to lower FDI/FPI inflows and rising global uncertainties.
The Takeaway
India has managed to bring down its current account deficit due to stronger services and remittances. But, the fall in FDI and FPI is a red flag. The RBI’s data shows both strength and stress.
If India can keep boosting its services sector while attracting more stable foreign investment, the current account balance can improve even more in the coming years.
Also Read India’s Economy Remains Stable Amid Global Trade and Political Uncertainty: RBI
