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Current account moves into a surplus of 1.3% of GDP in 4QFY25...

…led by an all-time high services trade surplus at 5.2% of GDP

* India’s current account registered a surplus of USD13.5b (or 1.3% of GDP) in 4QFY25 vs. a deficit of USD11.3b (1.1% of GDP) in 3QFY25 and a surplus of USD4.6b (0.5% of GDP) in 4QFY24 (Exhibit 1). Consequently, India’s current account deficit stood at 0.6% of GDP in FY25, which is the lowest in the last four years (Exhibit 2).

* The increase in current account surplus in 4QFY25 was led by an all-time high services account surplus of 5.2% of GDP (USD53.3b). It was 4.5% of GDP (USD42.7b) in 4QFY24. Exports of software and business services remained the bright spots, logging double-digit growth. Additionally, the surplus on the income account stood at USD19.6b (1.9% of GDP) in 4QFY25 vs. USD13.9b (1.5% of GDP) in 4QFY24. Overall, the invisible surplus increased to USD73b (7.2% of GDP) in 4QFY25 from USD56.6b in QFY24 (5.9% of GDP). On the other hand, India’s goods trade deficit widened to 5.8% of GDP in 4QFY25 compared to 5.4% of GDP in 4QFY24. (Exhibit 3).

* On a financial year basis, India’s invisibles surplus increased to USD263b (6.8% of GDP, an all-time high) in FY25 vs. 6% of GDP in FY24, led by much higher net services receipts of USD188.8b (4.8% of GDP in FY25 vs. 4.5% of GDP in FY24). On the other hand, India’s goods trade deficit stood at USD287b (7.3% of GDP) in FY25 vs. USD245b (6.7% of GDP) in FY24.

* The capital account witnessed outflows in 4QFY25 from inflows in 4QFY24 on account of outflows of USD5.8b (vs. inflows of USD11.4b in 4QFY24) under foreign portfolio investment and much lower inflows of USD0.4b (vs. inflows of USD2.3b in 4QFY24) under foreign direct investment. Additionally, non-resident deposits recorded a lower net inflow of USD2.8b in 4QFY25 than USD5.4b in 4QFY24. Consequently, there was an accretion of USD8.8b to the foreign exchange reserves (on a BoP basis) in 4QFY25 compared to an accretion of USD30.8b in 4QFY24. (Exhibit 4).

* On a financial year basis, net inflows under FDI stood at USD1b during FY25, much lower than USD10.2b in FY24. FPI recorded net inflows of USD3.6b in FY25, lower than USD44.1b in FY24. Consequently, there was a depletion of USD5b in the foreign exchange reserves (on a BoP basis) during FY25.

* Looking ahead, global economic volatility is expected to weigh on external demand. We anticipate that India’s merchandise exports will face continued pressure in FY26, largely due to a sharper decline in petroleum exports amid expectations of softer crude oil prices. In contrast, services exports are likely to remain resilient. On the import front, while oil imports may moderate, non-oil imports are expected to stay robust, supported by strong domestic demand.

* Taken together, a solid services trade surplus and steady remittance inflows should provide support to the current account. Against this backdrop, we estimate the current account deficit to remain contained at around 1% of GDP in FY26.

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