India’s current account deficit (CAD) moderated marginally to 1.2 per cent of GDP in the second quarter (Q2: July-September) of FY25 against 1.3 per cent in the year-ago period.
The moderation is due to an increase in net services receipts, private transfer receipts, net inflows under foreign portfolio investment (FPI) and non-resident deposits, among others.
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 absolute terms, the CAD was at $11.2 billion against $11.3 billion in the year-ago quarter.
Aditi Nayar, Chief Economist & Head – Research & Outreach, ICRA, said: “India’s current account deficit came in well below our expectation for Q2 FY2025, providing some solace in light of the sharp weakening in the Rupee seen recently.
“Looking ahead, the initial estimate of a record-high trade deficit in November 2024 could well bloat the current account deficit to 2.5-2.7 per cent of GDP in the current quarter (Q3FY25). For FY2025, the current account deficit may print around 1.1-1.2 per cent of GDP.”
While merchandise trade deficit in the reporting quarter rose to $75.3 billion against $64.5 billion in the year-ago quarter, net services receipts increased to $44.5 billion from $39.9 billion, per RBI’s statement on “Developments in India’s Balance of Payments during the Second Quarter”.
The central bank said services exports have risen on a year-on-year (yoy) basis across major categories such as computer services, business services, travel services and transportation services.
Net outgo on the primary income account, primarily reflecting investment income payments, decreased to $9.5 billion in Q2FY25 from $11.6 billion in the year ago period.
Private transfer receipts, mainly representing remittances by Indians employed overseas, rose to $31.9 billion in Q2FY25 from $28.1 billion in Q2FY24.
Net foreign direct investment (FDI) recorded a higher outflow of $2.2 billion in Q2FY25 compared to an outflow of $0.8 billion in the corresponding year ago period. Net inflows under foreign portfolio investment (FPI) increased to $19.9 billion in the reporting quarter from $4.9 billion in the year ago quarter.
Net inflows under external commercial borrowings (ECBs) to India amounted to $5 billion in Q2FY25, as against outflows of $1.9 billion in the corresponding period a year ago. Non-resident deposits (NRI deposits) recorded robust net inflows of $6.2 billion, higher than $3.2 billion a year ago.
