Current Account Surplus

Why in the News?

1. Recently, in June 2025, the Reserve Bank of India (RBI) released the data about the situation of the current account.
2.  It shows that India’s current account balance recorded a surplus of $13.5 billion in the fourth quarter of the financial year 2025.

Key Highlights

1. Data released by RBI

	Q4 FY24	Q4 FY25 (Recent data)
Current Account	Surplus = $4.6 billion (0.5% of GDP)	Surplus = $13.5 billion (1.3% of GDP) Improved from a deficit of $11.3 billion (1.1% of GDP) in Q3 FY25
Merchandise Trade Deficit	$52 billion	$59.5 billion Moderated from $79.3 billion deficit in Q3 FY25.
Net services receipts	$42.7 billion	$53.3 billion
Net outgo on the primary income account	$14.8 billion	$11.9 billion
Personal transfer receipts	$31.3 billion	$33.9 billion
Foreign Direct Investment (FDI)	Net inflow of $2.3 billion	Net inflow of $0.4 billion

2. Services exports have risen Year on Year (YoY) in major categories such as business services and computer services.

Current Account and Related Terms

1. Current Account
   1. The current account measures a country’s economic transactions with the rest of the world.
   2. It includes trade in goods and services, income flows, and remittances.
   3. A surplus means the country is earning more from the world than it spends.
   4. A deficit implies the opposite, that is when a country spends more than it earns from the world.
   5. It is a key indicator of the country’s external sector performance.
2. Merchandise Trade Deficit
   1. This refers to the gap between the value of goods India imports and exports.
   2. When imports (like crude oil, electronics) exceed exports (like textiles, chemicals), the result is a trade deficit.
   3. It reflects how much more we’re buying than selling in global markets.
   4. A higher trade deficit worsens the current account, increasing net outflows.
3. Net Services Receipts
   1. India exports a wide range of services, such as IT, software, business consulting, and tourism.
   2. Net services receipts represent the earnings from these services after accounting for what India pays to foreign service providers.
   3. India usually maintains a healthy surplus here, thanks to its strong service sector.
   4. A surplus here improves the current account, helping offset the goods trade deficit.
4. Net Outgo on the Primary Income Account
   1. This captures payments related to investment income, such as interest, dividends, and profits.
   2. If foreign investors earn profits in India and take that money back home, or India pays interest on external borrowings, it’s recorded as an outflow.
   3. When these outflows exceed the inflows, it’s called a net outgo.
   4. A net outgo (i.e. payments to the rest of the world) reduces the current account balance.
5. Personal Transfer Receipts
   1. Also known as remittances, this term refers to money sent by Indians working abroad to their families in India.
   2. These transfers are a vital source of income for many households and help support domestic consumption.
   3. These inflows support the current account by bringing in foreign exchange.
6. Foreign Direct Investment (FDI)
   1. FDI occurs when foreign entities invest directly in India, through factories, infrastructure, or business operations.
   2. Net FDI measures how much money is coming into the country after subtracting the outflow of older investments being withdrawn.
   3. It is a part of the capital account but can indirectly ease current account pressures by strengthening the rupee and funding trade deficits.

Implications for the Economy

1. Improved Current Account Position
   1. The significant surplus (1.3% of GDP) improves India’s external stability and buffers against currency volatility.
   2. Provides policy space for the government and RBI in managing inflation and external borrowing.
2. Strong Services Exports: A Major Driver
   1. Surge in services receipts reflects India’s strength in IT, consulting, and business services.
   2. Positions India as a services export powerhouse, helping offset trade deficits.
3. Higher Remittances = Boost to Rural Consumption
   1. Rising personal transfer receipts from the diaspora will support household consumption, particularly in rural areas.
   2. Enhances domestic demand and reduces pressure on social safety nets.
4. Decline in Net FDI Inflows: A Red Flag
   1. The drop from $2.3 bn to $0.4 bn raises concern about foreign investor confidence.
   2. Signals possible hesitancy due to global uncertainty or domestic regulatory and tax issues.
5. Lower Primary Income Outgo = Better Investment Returns
   1. Suggests improved returns from Indian investments abroad and lower dividends being sent back by foreign companies.
   2. Strengthens net income flows, supporting current account stability.

Challenges and Way Forward

Challenges	Way Forward
Decline in net FDI inflows	Improve ease of doing business and investor sentiment
Volatility in global trade and remittances	Diversify export markets and strengthen diaspora ties
Sustainability of current account surplus	Maintain competitiveness of services and exports
Dependency on external factors like crude oil prices	Promote energy efficiency and renewable energy

Conclusion

The current account surplus in Q4 FY25 is a significant economic milestone, reflecting strong services exports, resilient remittances, and better investment income. However, sustaining this surplus will require structural reforms to boost exports, attract stable capital inflows, and manage external vulnerabilities prudently.

Ensure IAS Mains Question Q. India has recorded a current account surplus in Q4 FY25. Discuss the factors contributing to this surplus and examine the associated opportunities and risks in the external sector. (250 words)

 

Ensure IAS Prelims Question Q. Consider the following statements regarding the Current Account in India’s Balance of Payments: A decline in net outgo on the primary income account improves the current account balance. An increase in net FDI inflows directly contributes to current account surplus. Rising remittances from Indians abroad are recorded as personal transfer receipts and help strengthen the current account. Which of the statements given above is/are correct? 1 and 2 only 2 and 3 only 1 and 3 only 1, 2 and 3 Answer: c Explanation Statement 1 is correct: When outflows under primary income (like profits, interest) reduce, the net burden on the current account lessens, thus improving the overall balance. Statement 2 is incorrect: FDI is part of the capital account, not the current account. While it may ease pressure, it doesn’t directly improve the current account balance. Statement 3 is correct: Remittances are part of the current transfers and contribute to inflows, strengthening the current account. India is a top recipient of such flows.