Economy News

Economists lower FY24 CAD forecasts on record services-trade surplus

During February, the country’s services trade surplus came in at $16.8 billion – the highest since April 2011 – as against $16.2 billion in January.

The near-13 year high services trade surplus in February has prompted economists to scale down their projections of India’s current account deficit (CAD) for the current financial year. Many economists now expect CAD to come in at 0.8-0.9% of the GDP during the entire FY24, as compared to their previous forecast of 1.1-1.2%.

“The services trade surplus has consistently risen since November 2023, narrowing the gap with the merchandise trade deficit, giving a fillip to the current account balance,” said Barclays economists in a note. India’s overall trade deficit during February was meagre $2billion, lower than $4.2 billion in January.

During February, the country’s services trade surplus came in at $16.8 billion – the highest since April 2011 – as against $16.2 billion in January. This was due to the record-high services exports, which stood at $32.2 billion in February as compared to $31 billion in January. Services imports, meanwhile, stood at $15.4 billion as against $14.9 billion.

Services trade surplus since the past three months has stayed consecutively above the $16-billion-mark, while goods trade deficit has remained contained below $20-billion, leading to sharp decline in the country’s overall trade deficit. In April-February, merchandise trade deficit has lowered 8.4% on year, while services trade surplus has soared by 17.8%.

IDFC FIRST Bank Economist Gaura Sen Gupta said that the pick-up in services surplus is led by rise in software services and professional services exports. “Post Covid-19 there has been a sustained rise in professional services surplus, reflecting the rise of global capability centres (GCCs),” she said. 

On the goods front, economists say that concerns over “adverse spillover” impact from the ongoing disturbance in the Red Sea region continues to evade India’s official trade statistics. “This hitherto suggests either better demand conditions, or the fulfilment of past contractual trade orders (or a combination of both),” said QuantEco Research in a note. The agency has cut its FY24 CAD estimate by 50 bps to 0.8% of GDP in the assumption of range-bound commodity price movement.

In a press-conference on Friday, Commerce Secretary Sunil Bhartwal said that the country has been able to withstand difficult times. “Projections for world trade for 2024 are much better. For next year (FY25), we are quite optimistic,” he said.

A jump in exports during February, led to the overall exports – including goods and services – to rise 0.8% on year in the first 11 months of the current fiscal. If this trend is sustained in March, net exports could turn positive in Q1FY24 after several quarters, pushing up the gross domestic product (GDP).

For FY25, economists expect the positive growth in exports to continue, and therefore, most have pegged their estimates at 1-1.2% of the GDP, down from 1.5-1.6% projected earlier. 

“Positive momentum for non-IT services may be felt in FY25 as well, while goods and core IT exports could see slower growth. With Brent at $85 per barrel, FY25E CAD could stay comfortable at 1.1-1.2% of GDP,” said Madhavi Arora, lead economist, Emkay Global.

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