The other big triumph is the rising role played by Indians living abroad and remitting money to their families in India.
At $105 billion last year, these inflows have significantly contributed to boosting the current account.
To be sure, we posted a current account surplus as recently as in April-June 2021 and even for full-year FY21, but those were years of GDP contraction when Indian industry could not absorb imports.
The current account surplus in that year reflected India's weakness.
Policy and entrepreneurship need to grow rapidly to harness the bonanza in fiscal and current account inflows.
India's services exports have grown by a robust 9% to $142 billion, while business process exports, represented by the Global Captive Centers (GCCs) grew by a whopping 41% to $29 billion. To be fair, it's a huge growth on a small base, but it represents the movement of the middle office—accounts, audit, payroll processing, sales analytics—from developed countries to India and the trend looks most likely to continue.
The other big triumph is the rising role played by Indians living abroad and remitting money to their families in India. Private transfers, as they are called, grew by 5% for the full-year FY24 and by 15.4% for the January-March quarter. At $105 billion last year, these inflows have significantly contributed to boosting the current account.
From a country that 33 years ago had barely enough dollars to pay for three weeks of oil imports to one that even 11 years ago (in 2013) was classified as one of a fragile five due to its wide current account deficit (CAD), India's current account surplus in the January-March quarter is a measure of its growth story. To be sure, we posted a current account surplus as recently as in April-June 2021 and even for full-year FY21, but those were years of GDP contraction when Indian industry could not absorb imports. The current account surplus in that year reflected India's weakness. However, this year, the current account surplus for January–March 2024, reflects India's new found niche in services exports and the strength of the Indian diaspora.Let us take a detailed look at what's positive about this year's external flows and what we need to do better.First, the positives:Now to come to the challenges.The current account was also helped by a decline in India's goods trade deficit in the latest year. India's exports fell by 3.3%, but imports fell by an even sharper 5.3%. While a fall in commodity prices from the unusual highs they touched in 2022 due to the Ukraine war was responsible for the fall in the value of imports and exports, the fact that the Indian industry could not use the fall in prices to import more reflects the limitations of India's industrial and manufacturing sector.What emphasises the likely weakness in our growth story is that net foreign direct investment (FDI) in FY24 fell to just $9.8 billion, one-third of the $28 billion that flowed in FY23.We also need to note that a current account surplus represents an outflow of the country's savings and that domestic savings couldn't find enough domestic avenues at this early stage of our growth story represents a challenge. At a per capita income of just $2550 in nominal terms and $8379 in PPP terms, India ranks 120th in the world.An export of savings surpluses at this stage represents an unutilised opportunity. India is on the cusp of reaping its demographic dividend and will experience growing services exports and a rising tax-to-GDP as more people enter the workforce. Policy and entrepreneurship need to grow rapidly to harness the bonanza in fiscal and current account inflows. That's the triumph and the challenge.
