India’s current account deficit (CAD) widened but at a less than expected pace to $11.5 billion in the third quarter of the current fiscal year (Q3FY25) from $10.4 billion in the year-ago quarter, owing mainly to a higher merchandise trade deficit. However, the CAD was still benign at 1.1% of GDP, similar to the year ago level. In Q2FY25, the CAD stood at 1.8% of GDP.
The current quarter (Q4FY25) is likely to see a current account surplus– both January ($16.5 billion) and February ($14 billion) saw trade deficits contained, as imports plunged sharply.
“There was a depletion of $37.7 billion to the foreign exchange reserves (on a balance of payment basis) in Q3FY25 as against an accretion of $ 6 billion in Q3FY24,” the Reserve Bank of India said in a statement.
Icra said it expects the current account to witness a surplus of ~$4-6 billion in Q4 FY2025, aided by a seasonal uptick in merchandise exports and the resulting moderation in the merchandise trade deficit, as well as healthy services surpluses. “Overall, we expect the CAD to print at 0.8% of GDP in FY25, before expanding slightly to ~1.0% of GDP in FY26 (baseline), even as the tariff related uncertainty could act as a spoiler,” the rating firm wrote.
Merchandise trade deficit increased to $79.2 billion in Q3FY25 from $ 71.6 billion in Q3FY24.
Net services receipts increased to $ 51.2 billion in Q3 from $ 45.0 billion a year ago. Services exports have risen on a y-o-y basis across major categories such as business services, computer services, transportation services and travel services, according to the RBI statement.
Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $16.7 billion in Q3 from $13.1 billion in the year ago quarter.
Personal transfer receipts, mainly representing remittances by Indians employed overseas, rose to $ 35.1 billion in Q3 this fiscal from $30.6 billion in the year ago quarter.
“In the financial account, foreign direct investment recorded a net outflow of $ 2.8 billion in Q3FY25 as against an inflow of $ 4.0 billion in the corresponding period of 2023-24. Foreign portfolio investment recorded a net outflow of $ 11.4 billion in Q3FY25 as against an inflow of $12.0 billion in Q3FY24. Net inflows under external commercial borrowings (ECBs) to India amounted to $ 4.3 billion in Q3FY25, as against an outflow of $ 2.7 billion in the corresponding period a year ago,” the RBI added.
Non-resident deposits recorded a net inflow of $ 3.1 billion, lower than $ 3.9 billion a year ago. There was a depletion of $ 37.7 billion to the foreign exchange reserves (on a BoP basis) in Q3FY25 as against an accretion of $ 6.0 billion in Q3FY24.
April-December
India’s CAD widened to $37.0 billion (1.3% of GDP) during April-December 2024 from $ 30.6 billion (1.1% of GDP) during April-December 2023 primarily on account of a higher merchandise trade deficit. Net invisibles receipts were higher during April-December 2024 than a year ago on account of services and transfers. Net FDI inflow at $1.6 billion during April-December 2024 was lower than $ 7.8 billion during April-December 2023.
During April-December 2024, portfolio investment recorded a net inflow of $ 9.4 billion, lower than $ 32.7 billion during the corresponding period a year ago. There was a depletion of $ 13.8 billion to the foreign exchange reserves (on a BoP basis) during April-December 2024.