India's economy has delivered a surprise that’s being discussed across the globe. In the fourth quarter of the financial year 2024-25 (Q4 FY25), India recorded a current account surplus of $13.5 billion, which amounts to 1.3% of the nation's GDP. This figure is not just a statistic — it symbolizes India’s growing economic strength, increasing self-reliance, and rising global influence at a time when major economies like the US, China, and Europe are facing economic challenges.
But what exactly is a current account surplus?
The current account measures a country's trade and financial transactions with the rest of the world. It includes exports and imports of goods and services, earnings on investments, and transfers. A current account surplus occurs when a country earns more from exports and other sources than it spends on imports and foreign obligations. Essentially, it means the country is saving more than it is spending internationally.
Key Highlights:
In Q4 FY25, India recorded a current account surplus of $13.5 billion, nearly three times higher than the $4.6 billion surplus recorded in the same quarter last year.
For the entire FY25, India’s current account deficit stood at just 0.6% of GDP, compared to 0.7% in FY24, indicating a shrinking gap and a potential shift towards becoming a surplus nation.
This turnaround is notable especially because Q3 FY25 had seen a current account deficit of $11.3 billion, which transformed into a surplus in the very next quarter.
What Triggered This Major Shift?
Economists attribute this turnaround to three key factors:
Reduced Outflow on Investment Income: India paid less in terms of interest and dividends to foreign entities in Q4, leading to higher dollar retention.
Strong Service Exports: India earned $53.3 billion from service exports in Q4 FY25, up significantly from the previous year. Sectors such as IT services, business process outsourcing (BPO), and consultancy played a pivotal role in this growth.
Narrowed Trade Deficit: The merchandise trade deficit in Q4 came down to $59.5 billion, compared to $79.3 billion in Q3. This decline in the trade gap significantly boosted the current account position.
This economic resilience is even more impressive considering the global backdrop of recessionary trends. While the United States continues to run a current account deficit exceeding 3% of GDP, India's is now just 0.6%. This comparison alone highlights India's emerging status as a guiding economic power rather than just an emerging market.
Areas of Concern
Despite the positive data, the current account surplus is not without caveats. Foreign investment flows into India have shown signs of weakness:
Foreign Direct Investment (FDI) in Q4 FY25 stood at a mere $0.4 billion, significantly lower than the $2.3 billion recorded in the same period last year. For the entire FY25, FDI was just $1 billion.
Foreign Portfolio Investment (FPI) also faced an outflow of $5.9 billion in Q4 FY25. Total FPI inflow for the year was $3.6 billion, a steep drop from $44.1 billion in FY24.
One bright spot was the increase in External Commercial Borrowings (ECB). In Q4 FY25, India raised $7.4 billion through ECBs, up from $0.6 billion in Q4 FY24.
Additionally, India’s forex reserves rose by $8.8 billion in Q4. Although this is lower than the $30.8 billion increase during the same quarter last year, the healthy current account surplus has added confidence in India’s macroeconomic fundamentals.
Outlook
ICRA Chief Economist Aditi Nayar has stated that India’s current account deficit could remain as low as 1% of GDP in FY26, provided global oil prices remain around $70 per barrel. This outlook further cements confidence in India’s macroeconomic stability.
The shift from current account deficit to surplus is not just a temporary trend — it’s a reflection of structural changes taking place in the Indian economy. Government initiatives such as Make in India, Digital India, and Skill India are beginning to show tangible outcomes in the form of higher service exports and reduced import dependency.
As the world grapples with uncertainty, India is quietly scripting a new economic narrative — from being a vulnerable emerging market to becoming a dependable, stable force in the global economy.
Will India maintain this momentum in the coming quarters? Could this indeed be a turning point in India's economic journey? Only time will tell, but for now, the signs are encouraging.
Disclaimer:
This article is for informational purposes only. Readers are advised to do their own research or consult financial experts before drawing conclusions or making investment decisions.
