India's Q2 FY25 Services Surplus to Rise by 10.6%

Chennai: The services trade surplus could grow around 10.6 per cent in the second quarter of FY25 due to strong services demand globally. Meanwhile, current account deficit for first quarter of FY25 is expected to be 0.8 per cent while it could be 1 per cent in the second quarter.

Service demand has remained strong. The global services PMI stood at 53.3 in July 2024, remaining in expansion for the past 19 months. The services trade surplus could grow around 10.6 per cent to $44 billion in 2QFY25.

Meanwhile, the current account balance (CAB) may register a deficit of around $8 billion or 0.8 per cent of GDP in 1QFY25 as against a surplus of $5.7 billion or 0.6 per cent of GDP in the previous quarter. The current account deficit in 1QFY24 stood at $9 billion or 1 per cent of GDP.

Going forward, India Ratings expects the current account deficit to firm up to around 1 per cent of GDP in 2QFY25 due to slackening in economic activity in the developed world, and disruption in economic activity in Bangladesh.

The global trading activity has been picking up well so far in FY25, despite the economic environment being under a mix of uncertainty and volatility. The global trade grew 1.4 per cent in Q1 FY25, which was the fastest pace of growth in six quarters. This has been on the back of the so far resilient global economic activity.

However, there is some bit of slackening particularly in developed economies. The global manufacturing Purchasing Managers’ Index (PMI) in July 2024 contracted (49.7) for the first time in 2024, as production declined in developed economies. The slack continued even in August 2024 and this would result in merchandise exports to increase only by 1 per cent to around $108 billion in 2QFY25, largely due to the favourable base effect. The merchandise imports are expected to grow 3.5 per cent to around $176 billion in 2QFY25. Overall, goods trade deficit may come in at $68 billion in 2QFY25. Bangladesh has been among the top 10 exporting destinations for India. The political situation in Bangladesh is fluid which has impacted the business and economic activity, especially their garments industry. Textile raw materials and petroleum products are the major items exported by India to Bangladesh. The disruption to economic activity, if continued, is likely to have an adverse impact on India’s intermediate exports for these products.

However, Bangladesh acts as an opportunity for India to scale-up its downstream textile exports. Bangladesh exported textiles products worth $47.38 billion in 2023.