India’s Current Account Deficit to Stay Stable in 2025-26: Report
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Synopsis
A Crisil report forecasts that India's current account deficit will remain secure during 2025-26. The expected CAD is slightly higher at 1.3% of GDP due to strong services exports and remittances, despite pressures from the merchandise trade deficit.
Key Takeaways
- Current Account Deficit (CAD) estimated at 1.3% of GDP in 2025-26.
- Stable CAD of $11.5 billion in Q3 FY 2024-25.
- Merchandise trade deficit worsened due to oil balance.
- Net foreign capital outflow impacted forex reserves.
- Forex reserves rebounded to $658.8 billion.
New Delhi, April 2 (NationPress) Strong services exports and the influx of substantial remittances from Indians working abroad are expected to keep India’s current account deficit (CAD) within a secure range throughout the financial year 2025-26, despite some pressures on the country’s merchandise trade deficit, according to a report by Crisil published on Wednesday.
The report estimates that the CAD will see a slight increase to 1.3 percent of GDP in 2025-2026, compared to an anticipated 1 percent of GDP in 2024-2025.
In the third quarter of the fiscal year 2024-25, India’s current account deficit stood at $11.5 billion, or 1.1 percent of GDP, showing stability as opposed to $10.4 billion, or 1.1 percent of GDP, in the same quarter of the previous year, the report indicates.
Sequentially, the deficit decreased from $16.7 billion, or 1.8 percent of GDP, in the second quarter of fiscal 2025.
Despite the deterioration in the merchandise trade deficit during the third quarter, there was a compensating effect from a rise in services surplus and remittances from overseas Indians.
The increase in the merchandise trade deficit was primarily due to a decline in oil trade balance, with exports dropping and imports rising, the report highlights.
During the third quarter, there was a net outflow of foreign capital, contrasting with the net inflow seen in the previous year’s quarter. This was reflected in the rupee’s 1.6 percent depreciation to 84.5 per dollar in the third quarter, down from 83.2 in the same period last fiscal year, as stated in the report.
All subcomponents within the financial accounts experienced outflows, with net foreign portfolio investor (FPI) outflows reaching $11.4 billion. Other investments saw outflows for the first time since the second quarter of fiscal year 2023.
The net outflow from the financial account, coupled with the current account deficit, posed a challenge to India’s forex reserves, which declined by $37.7 billion in the third quarter.
Nonetheless, this also reflects the Reserve Bank of India’s intervention in the forex market through US dollar sales to mitigate significant rupee volatility during the quarter. The situation has since shown some stabilization. Consequently, India’s forex reserves increased to $658.8 billion as of March 21, up from $644.4 billion at the end of the third quarter, according to the report.
