India Posts Current Account Surplus in Q4 FY25

In June 2025, the Reserve Bank of India (RBI) reported that India posted a Current Account Surplus (CAS) of USD 13.5 billion (1.3% of GDP) in the January–March quarter (Q4) of FY 2024–25. This marks India’s first current account surplus in four quarters. The surplus is attributed primarily to a surge in services exports, a rise in remittance inflows, and a decline in net primary income outflows.

What is a Current Account?

The Current Account is a component of the Balance of Payments (BoP), which records all transactions in goods, services, income, and transfers between a country and the rest of the world.

Key Components of Current Account:

  • Trade in Goods: Exports and imports of physical goods.
  • Trade in Services: Software, tourism, BPO, consultancy, etc.
  • Net Primary Income: Income from foreign investments (dividends, interest).
  • Net Secondary Income: Remittances, gifts, grants from abroad.

India usually records a Current Account Deficit (CAD) due to high merchandise imports, especially oil, gold, and electronics. However, this pattern was temporarily reversed in Q4 FY25.

Why Did India Post a Surplus in Q4 FY25?

  • Rise in Net Services Exports: Net services receipts surged to USD 53.3 billion, up from USD 42.7 billion a year earlier.
    • Major contributors include IT services, business services, and consulting.
    • Growth in global digital demand helped India’s export-oriented service sector.
    • This reflects the growing dominance of India’s invisible sector, which compensates for merchandise trade deficits.
  • Record-High Remittance Inflows: Personal transfers (remittances) increased to a historic high of USD 33.9 billion, compared to USD 31.3 billion in Q4 FY24.
    • Increased overseas employment opportunities, especially in Gulf countries.
    • Stronger rupee value perception encouraged higher inward remittances.
    • Remittances form part of secondary income and provide a stable and counter-cyclical source of foreign exchange.
  • Reduced Primary Income Outflows: Net primary income outflows reduced from USD 14.8 billion to USD 11.9 billion.
    • Possibly due to lower dividend payments to foreign investors.
    • Moderation in interest payouts on external commercial borrowings.
    • A fall in these outflows eases current account pressure and boosts net earnings.
  • Moderation in Trade Deficit: Merchandise trade deficit stood at USD 59.5 billion, wider than Q4 FY24 (USD 52 billion) but narrower than Q3 FY25 (USD 79.3 billion).
    • Though still large, the narrowing trade gap helped in achieving a net surplus when offset by services and remittances.

What is Balance of Payment?

  • The Balance of Payments is a systematic record of all monetary transactions between a country and foreign nations. These include exports, imports, capital flows, foreign aid, loans, investments, and remittances.

BoP Position in Q4 FY25:

  • Surplus of USD 8.8 billion.
  • Forex reserves rose marginally during this period.

Full-Year FY25 BoP:

  • Overall BoP Deficit: USD 5 billion, compared to a surplus of USD 63.7 billion in FY24.
  • Indicates capital account vulnerabilities, despite current account strength in Q4.

What is a Capital Account?

  • The Capital Account of the Balance of Payments records all international financial transactions related to ownership of assets, investments, loans, and banking capital between residents of a country and the rest of the world.

Components of Capital Account:

  • Foreign Direct Investment (FDI): Long-term investment in business assets involving ownership and control.
  • Foreign Portfolio Investment (FPI): Investment in equity, bonds, and other financial assets for short-term returns.
  • External Commercial Borrowings (ECBs): Loans taken by Indian companies from foreign lenders in foreign currency.
  • NRI Deposits: Foreign currency deposits by Non-Resident Indians in Indian banks.
  • Trade Credit and Advances: Short-term credit from foreign suppliers or buyers for import-export trade.
  • Banking Capital: Cross-border financial flows involving Indian commercial banks and the RBI.
  • Rupee Debt Service: Repayment of older rupee-denominated loans to/from foreign governments.
  • Other Capital: Residual category covering asset transfers, real estate, and unclassified capital flows.

Capital Account Movements: An Area of Concern

  • FDI Inflows:Declined to just USD 0.4 billion, reflecting caution among long-term investors.
  • FPI Outflows: Net outflows of USD 5.9 billion, reversing the trend of USD 11.4 billion inflow in Q4 FY24.

A volatile capital account can undermine BoP stability, even when current account performance is strong.

Policy and Strategic Implications

  • Strength of Invisible Sector:
    • India’s global leadership in services is not only a growth engine, but also a shield against BoP crises.
  • External Vulnerability Still Exists:
    • Structural dependence on oil and gold imports keeps India’s CAD prone to external shocks.
  • Need for FDI Stability:
    • Policymakers must focus on attracting long-term, stable capital rather than speculative flows.
  • Forex Reserve Management:
    • RBI’s conservative approach to reserve accumulation has helped absorb shocks, but surplus management and currency stability must be balanced.