Current Account Deficit Drops to $12.3 Billion
India's current account deficit has seen a significant reduction, falling to $12.3 billion, which is 1.3% of the gross domestic product (GDP) for the July-September 2025 quarter. This figure is a welcome improvement from the $20.8 billion deficit reported during the same period last year. The Reserve Bank of India (RBI) has highlighted that this change is indicative of a strengthening economic position.
The current account deficit is a crucial indicator of a country's economic health, representing the difference between exports and imports of goods and services. In the previous quarter, April-June 2025, the deficit was $2.4 billion, or just 0.2% of GDP. This shift reflects a growing balance in India's external sector.
While the merchandise trade deficit remains substantial at $87.4 billion in Q2 FY26, it marks a slight decrease from $88.5 billion in the same quarter last year. This trend suggests improved efficiency in trade, although challenges remain.
Notably, personal transfer receipts, primarily from Indian expatriates, rose to $38.2 billion in this quarter, up from $34.4 billion last year. Additionally, net services receipts increased to $50.9 billion, bolstered by growth in sectors like computer and business services.
Foreign direct investment (FDI) also showed positive signs with a net inflow of $2.9 billion, contrasting with a net outflow of $2.8 billion in the corresponding period last year. However, foreign portfolio investment (FPI) experienced a net outflow of $5.7 billion, a decline from the previous year’s net inflow of $19.9 billion.
Despite these positive indicators, the country’s foreign exchange reserves fell by $10.9 billion on a balance of payments basis in Q2 FY26, a significant change from an increase of $18.6 billion in the same quarter the previous year.
Experts, including ICRA's Chief Economist Aditi Nayar, have indicated that a spike in gold imports in October 2025 may lead to an increased current account deficit in the following quarter, potentially exceeding 2.5% of GDP. However, she expects that as gold imports stabilize, the monthly trade deficit will ease, resulting in a manageable current account deficit of around 1.1-1.2% of GDP for FY2026.
