NEW DELHI: India’s current account deficit narrowed sharply to $12.3 billion, or 1.3 pc of GDP, in the second quarter of FY 2025-26, from $20.8 billion (2.2 pc of GDP) in the same quarter a year earlier, according to preliminary balance of payments (BoP) data released by the Reserve Bank of India on Monday.
The merchandise trade deficit moderated to US$ 87.4 billion in Q2, marginally lower than $88.5 billion in the corresponding period last year. Exports and imports both grew, but the increase in exports helped contain the deficit.
India’s foreign exchange reserves, on a BoP basis, saw a depletion of $10.9 billion in Q2, in contrast to an increase of $18.6 billion in the same quarter a year earlier, RBI data said.
The net inflows of Foreign Direct Investment (FDI) surged to $2.9 billion, reversing a net outflow of $2.8 billion a year earlier. Further, the Foreign Portfolio Investment (FPI) showed a net outflow of $5.7 billion, contrasting sharply with $19.9 billion in net inflows last year.
The net inflows of External Commercial Borrowings (ECBs) totalled $1.6 billion, down from $5.0 billion in Q2 FY 2024-25 while the net inflows in the NRI Deposits stood at $2.5 billion, compared with USD 6.2 billion last year. Net services receipts rose significantly to $50.9 billion, compared with $44.5 billion a year earlier, RBI data said.
The RBI noted that computer services and other business services remained key contributors to the rise in services exports. Outflows under the primary income account, largely investment income payments, expanded to $12.2 billion, up from $9.2 billion in Q2 of FY 2024-25.
Aditi Nayar, Chief Economist, ICRA said, “While the current account deficit expectedly widened in Q2 FY2026, it undershot our forecast of ~US$ 17 billion primarily on account of a slightly lower goods deficit and stronger-than-expected remittance flows”.
“Looking ahead, the spike in gold imports in October 2025 is likely to bloat the ongoing quarter’s current account deficit considerably to above 2.5 pc of GDP. With gold imports unlikely to sustain this surge in the coming months, we expect the monthly merchandise trade deficit figures to ease relative to the levels seen in October 2025,” she said. “Overall, we foresee India’s current account deficit at a relatively manageable ~1.1-1.2 pc of GDP in FY2026”.
As per the data released by the RBI, in the first half of FY 2025-26, India’s current account deficit fell sharply to $15.0 billion (0.8 pc of GDP) from $25.3 billion (1.3 pc of GDP) a year earlier. The improvement was supported by a strong rise in net invisibles, which increased to $141.3 billion on the back of higher services exports and remittances, RBI said.
Net FDI more than doubled to $7.7 billion, signalling improved investment sentiment. However, FPI flows reversed, with net outflows of $4.1 billion compared to inflows of $20.8 billion last year. During the same period, foreign exchange reserves declined by $6.4 billion, contrasting with an accretion of $23.8 billion in H1 of the previous fiscal. (ANI)
