India’s current account deficit (CAD) in Q2FY25 shrunk marginally to 1.2% of GDP from 1.3% in Q2FY24 primarily due to rise in services exports, data released by the Reserve Bank of India (RBI) showed on Friday.
In absolute terms, the CAD stood at $11.2 billion in Q2FY25, compared with $11.3 billion in the same quarter of FY24. In Q1FY25, the CAD stood at $9.7 billion, or 1.1% of the GDP.
“A strong service trade surplus continues to be an important counterweight to the wider goods shortfall,” said Radhika Rao, senior economist, DBS Bank.
In Q2 services trade surplus rose to $44.5 billion from $39.9 billion year ago.
The RBI highlighted that services exports have risen on a y-o-y basis across major categories such as computer services, business services, travel services and transportation services, in July-September.
India’s merchandise trade deficit in Q2FY25 had widened to $75.3 billion from $64.5 billion in the year-ago period. The country’s monthly merchandise trade deficit had widened to a record high of $37.8 billion in November, driven by a surge in gold imports, which was up 331% on year.
Due to this, economists say in Q3, the CAD could bloat up to 2.5-2.7% of the GDP. “For FY25 as a whole, the CAD may print around 1.1-1.2% of GDP,” said Icra’s chief economist Aditi Nayar. IDFC FIRST Bank’s chief economist Gaura Sen Gupta expects full year’s CAD at 1.3% with downside risks.
In Q3 so far, the net foreign portfolio investment (FPI) stood at $11.48 billion, as against (-) $10.35 billion. In H1, the CAD was $ 21.4 billion, or 1.2% of GDP, as compared with $ 20.2 billion, or 1.2% of GDP in H1FY24.
Last month, the finance ministry had said in a report that going forward, there is likely to be a continued upward pressure on the trade deficit, driven by a faster pace of import growth. “Rising commodity prices, particularly for industrial inputs and metals, are expected to contribute to imported inflation and increase the import bill,” it had said.
Meanwhile, net outgo on the primary income account, primarily reflecting payments of investment income, decreased to $ 9.5 billion in Q2FY25 from $11.6 billion year ago, said the RBI. Private transfer receipts, mainly representing remittances by Indians employed overseas, rose to $ 31.9 billion from $ 28.1 billion.
Further, in Q2, net foreign direct investment recorded an outflow of $ 2.2 billion in Q2FY25 compared with an outflow of $0.8 billion in the corresponding period of FY24.