India’s current account deficit (CAD) widened to $11.5 billion in the third quarter (Q3) of FY25 from $10.4 billion in the year-ago quarter due to increase in merchandise trade deficit. However, CAD was unchanged at 1.1 per cent in terms of percentage of GDP.
CAD is a measure of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
In the reporting quarter, CAD moderated from $16.7 billion (1.8 per cent of GDP) in the preceding quarter, per RBI’s statement on “Developments in India’s Balance of Payments during the Third Quarter (October-December) of 2024-25.”
Merchandise trade deficit increased to $79.2 billion in Q3FY25 from $71.6 billion in the year-ago period.
‘Lower than expected’
Aditi Nayar, Chief Economist, Head – Research & Outreach, ICRA, observed that the CAD widened, albeit to a lower-than-expected $11.5 billion in Q3FY2025 from $10.4 billion in the year ago quarter, led by a higher merchandise trade deficit.
“ICRA expects the current account to witness a surplus of $4-6 billion in Q4 (January-March) FY25, 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 per cent of GDP in FY25, before expanding slightly to 1 per cent of GDP in FY26 (baseline), even as the tariff related uncertainty could act as a spoiler,” Nayar said.
Net services receipts increased to $51.2 billion from $45 billion a year-ago. RBI said services exports have risen on a year-on-year (y-o-y) basis across major categories such as business services, computer services, transportation services and travel services.
Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $16.7 billion in Q3FY25 from $13.1 billion in the year ago period.
Personal transfer receipts, mainly representing remittances by Indians employed overseas, rose to $35.1 billion in Q3FY25 from $30.6 billion in Q2FY24.
Outflows and inflows
Net foreign direct investment (FDI) recorded a net outflow of $2.8 billion in Q3FY25 as compared with an inflow of $4 billion in the corresponding year ago period. Foreign portfolio investment (FPI) recorded a net outflow of $11.4 billion in the reporting quarter as against an inflow of $12 billion in the year ago quarter.
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. Non-resident deposits (NRI deposits) recorded a net inflow of $3.1 billion, lower than $3.9 billion a year ago.
