Mon Sep 30 16:49:54 UTC 2024: ## India’s Current Account Deficit Widens in Q1 FY25, Gold Imports Surge
**MUMBAI** – India’s current account deficit (CAD) expanded in the first quarter of the fiscal year 2025, reaching USD 9.7 billion, or 1.1 percent of GDP, according to data released by the Reserve Bank of India (RBI) on Monday. This marks an increase from USD 8.9 billion, or 1 percent of GDP, recorded in the same period last year.
The widening deficit was primarily attributed to a surge in gold imports, which reached over USD 10 billion in August alone, nearly double the monthly average. This followed a reduction in import duty on gold.
Despite the current account deficit, India had recorded a surplus in the previous quarter (Q4 FY24), marking the first surplus in 10 quarters. However, the RBI revised this surplus downwards to USD 4.6 billion from USD 5.7 billion due to adjustments in customs data on merchandise imports.
The RBI highlighted that the merchandise trade gap widened to USD 5.1 billion in Q1 FY25 compared to USD 56.7 billion in the year-ago period. However, net services receipts rose to USD 39.7 billion during the quarter, fueled by increased services in areas like computers, business, travel, and transportation.
While foreign portfolio investment witnessed a sharp moderation to USD 0.9 billion, down from USD 15.7 billion in the corresponding period last year, net inflows under external commercial borrowings (ECBs) also declined to USD 1.8 billion from USD 5.6 billion.
On a positive note, private transfer receipts, a proxy for remittances from the diaspora, increased to USD 29.5 billion from USD 27.1 billion in the same period of the previous fiscal. Net foreign direct investment inflows also rose to USD 6.3 billion from USD 4.7 billion year-on-year.
Analysts anticipate the CAD to further widen in the coming quarters due to continued high gold imports. However, they expect the deficit to moderate in the subsequent months as gold imports stabilize, potentially averaging between 1.1-1.2 percent of GDP for the entire fiscal year.
India Ratings noted that merchandise exports grew at the fastest pace in six quarters, expanding by 5.9 percent to USD 111.2 billion in Q1 FY25. However, merchandise imports grew even faster, by 9.1 percent to USD 176.3 billion, leading to a surge in the goods trade deficit.
Despite the recent surge, the overall global trading activity is on the rise, with global trade growth reaching its fastest pace in six quarters. However, there is some slackening in growth, particularly in developed economies.
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