The Elusive Current Account Surplus: What 25 Years of Data Reveal About India’s Trade Balance 30Jun2025

 

The Elusive Current Account Surplus: What 25 Years of Data Reveal About India’s Trade Balance 30Jun2025

 

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(This is for information purposes only. This should not be construed as a recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.) 

  

 

 

Current account (CA) surplus is a rare phenomenon in India and there is nothing to celebrate about it.

 

Financial market participants (FMPs) on Twitter / X seem to have been carried away by the current account surplus reported by Reserve Bank of India (RBI).

 

People appear to be jubilant about quarterly CA surplus of India for the fourth quarter (Jan-Mar2025) of FY 2024-25. But how is quarterly print important when for all the three quarters (Apr2024 to Dec2024) we ran a deficit?

 

A few days ago, RBI reported Balance of Payments (BoP) figures for the fourth quarter (Jan-Mar2025) as well as the full year 2024-25. India recorded a current account surplus of USD 13.5 billion (1.3 per cent of GDP) for the Jan-Mar2025 quarter – though during the first three quarters we had a total current account deficit (CAD) of USD 36.9 billion, resulting in full year CAD of USD 23.3 billion.  

 

 

2. A snapshot of Current Account 

India’s Balance of Payments (BoP) is divided into two main accounts: the Current Account and the Capital Account. 

Two components of current account are: Merchandise trade (exports and imports of goods) and Net Invisibles.

 

Net Invisibles essentially represent transactions that don't involve the physical movement of goods. Key items in net invisibles are: Services exports and imports, Transfers and Income (for more on this, see update 29Jun2025 with chart 101 of blog Forex Data Bank).

 

If exports (goods and net invisibles) are higher than imports (goods and net invisibles), a country will have a surplus on the current account (CA). If exports (goods and net invisibles) are lower than imports (goods and net invisibles), a country will have a deficit on the current account.

 

3. One Quarter Does Not Define the Year

 

A single-quarter surplus, especially in the fourth quarter (Jan-Mar 2025), doesn’t tell the full story if the overall trend throughout the rest of the year shows a deficit.

It's crucial to analyse the annual or cumulative data for a larger picture rather than focusing on isolated periods.

The first three quarters (Apr-Dec2024) showing a deficit indicating that imports (goods and services) are exceeding exports for a significant portion of the year.

A surplus in just one quarter (such as fourth quarter) could be an outlier and might not be sustainable over time.

The full-year data is more reflective of the underlying structural health or lack thereof of the current account. 
 

A single-quarter surplus can easily be an anomaly due to temporary factors like seasonal changes in trade flows, shifts in imports or exports, or even speculative movements in currency. 

 

 

4. Analysis of 25 years CA Balance data 

 

In the past 25 years, India experienced current account surplus only in four years, and in the rest of the years, it was current account deficit (see Chart 99 of Forex Data Bank).

 

An analysis of India's current account balance (CAB) over the past 25 years (2000-01 to 2024-25) provides a detailed look into the trends and patterns of the current account surplus and deficit. Here are the key insights:

a) Frequency of Current Account Surplus:

Out of 25 years, India never experienced a current account surplus in 13 years (not even in a single quarter), which means the country’s current account was more often in deficit.

In 12 years, at least one quarter saw a current account surplus. However, it’s important to note that the current account surplus was rare, occurring in just 22 quarters out of 100 quarters over the 25-year period of this analysis.

 

b) Years in full-year surplus:

The four full years where India achieved a current account surplus:

2020-21

2003-04

2002-03

2001-02

 

2020-21: This year saw a COVID-19-induced contraction of 5.8 per cent in real GDP. The current account ended in a surplus of USD 23.9 billion largely because of a sharp decline in imports (due to reduced domestic demand and global disruptions) even as exports were affected.  

 

2003-04: This year was somewhat an outlier, with a USD 14.1 billion CA surplus despite strong GDP growth (7.9%). This could be attributed to low imports and strong exports at the time driven by high global demand. The impressive economic performance in 2003-04 was though on a low base (3.8% growth in 2002-03).

2001-02 and 2002-03: These were years of Vajpayee government in which economic growth was subdued though Vajpayee government implemented significant economic reforms. Low economic growth rates in these periods meant reduced demand for imports, while the economy was still on a mild growth path (for India GDP data, see update 30Jun2025 with chart 56 of Indian Economy data bank). 

c) Quarterly surplus trends:
  

In 12 years, at least in one quarter, there was current account surplus (CA surplus). Out of the 48 quarters (in these 12 years), 22 quarters experienced CA surplus (see chart below).

Fourth Quarter (Jan-Mar): Of the 22 quarters with a current account surplus, 10 quarters with surplus occurred in the fourth quarter (Jan-Mar) of the respective financial year. This shows a seasonal pattern, suggesting that in the final quarter of the fiscal year, India’s trade balance and external payments may be in a more favorable position.

If you look at the big picture of 100 quarters, only in 22 quarters India experienced current account surplus – most of these quarters are low economic growth periods of Vajpayee government between 2000-2001 to 2003-04.

 

Chart: India Current account balance - quarterly / yearly data where the current account balance is in surplus (a snapshot of 25 years data from 2000-01 to 2024-25):

 

 

Data sources for the above chart:

 

RBI press release 27Jun2025 Developments in India overall balance of payments 

RBI DBIE: Table 196: India overall balance of payments - quarterly - USD 

India Forex data bank

Indian Economy data bank 

 

 

5. Concluding Remarks

 

India’s current account balance is predominantly in deficit over the past 25 years, with surpluses occurring only sporadically. For the most part, current account surplus in India coincided with tepid economic growth as shown above with data analysed over 25 years (100 quarters).  

 

The fourth quarter of the fiscal year tends to have a higher likelihood of surplus due to seasonal export cycles and changes in import behavior. As such, it's premature to be gleeful about one-off events like quarterly surplus in current account. 

 

India’s manufacturing sector has been one of the major limiting factors in its ability to sustain a current account surplus, unlike countries like China which is a global manufacturing powerhouse. 

While India has significant strengths in services exports (such as information technology, business process outsourcing and other services), manufacturing has not reached the same level of scale or efficiency, which makes it difficult to achieve long-term current account surpluses.  

 

However, services exports alone are not enough to offset the large trade deficits that India runs in goods (especially in crude oil, gold and electronics imports). 

 

In the Indian context, a current account deficit of up to 2 per cent of GDP is considered manageable and drives economic growth. Because India needs imports of capital goods and other machinery to run factories in India. 

 

Imports are needed for future exports also, for example, gems and jewellery sector. India imports raw materials like gold, diamonds and other precious metals, which are then processed in India and exported as high-value finished goods. 

Beyond 2 per cent CAD, India becomes vulnerable to external shocks, like, in 2011-12 and 2012-23; when CAD shot up by more than 4 per cent of GDP.

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Additional data:

 

India GDP growth rates:

 

 

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Disclosure:  I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.

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