Daijiworld Media Network - Mumbai
Mumbai, Mar 3: India’s external sector showed a modest deterioration in the December quarter of FY26, with the current account deficit (CAD) widening to $13.2 billion, or 1.3 per cent of GDP, according to data released by the Reserve Bank of India.
The deficit stood at $11.3 billion (1.1 per cent of GDP) in the corresponding quarter a year ago.
The slippage was largely driven by merchandise trade. The trade deficit expanded sharply to $93.6 billion from $79.3 billion a year earlier, as exports to the United States weakened.
However, the services sector continued to provide a cushion. Net services receipts rose to $57.5 billion from $51.2 billion, supported mainly by strong exports of computer and business services.
Outflows under the primary income account, largely reflecting investment income payments, narrowed to $12.2 billion from $16.4 billion. Meanwhile, remittances remained resilient, with personal transfer receipts rising to $36.9 billion from $35.1 billion.
Despite the quarterly uptick, the year-to-date numbers paint a relatively better picture. For April–December 2025, the CAD moderated to $30.1 billion (1 per cent of GDP), compared to $36.6 billion (1.3 per cent of GDP) in the same period last year.
Capital flows during the quarter were mixed. Net foreign direct investment (FDI) recorded an outflow of $3.7 billion, marginally higher than the outflow seen a year ago. Foreign portfolio investment (FPI) witnessed a small net outflow of $0.2 billion, significantly lower than the $11.4 billion withdrawn in the year-ago period.
Non-resident deposits brought in $5.1 billion, up from $3.1 billion, while external commercial borrowings moderated to $3.3 billion from $4.4 billion.
On a balance-of-payments basis, foreign exchange reserves declined by $24.4 billion, compared to a sharper depletion of $37.7 billion a year earlier.
Economists remain divided on the outlook. Kaushik Das of Deutsche Bank cautioned that a $20 billion rise in the CAD, driven by higher oil prices, could push the balance of payments into a $20 billion deficit in FY27, potentially renewing depreciation pressure on the rupee if capital inflows remain weak.
Even so, he retained a year-end USD/INR target of 90, noting that the 40-currency trade-weighted real effective exchange rate stands at 94.7 and that geopolitical tensions may ease. With foreign exchange reserves at $724 billion, he said the RBI has adequate room to manage excessive volatility.
Astha Gudwani, economist at Barclays, said that after a $10.9 billion deficit in Q2, the April–December FY25-26 balance of payments stands at a $30.8 billion deficit. She expects moderation in Q4, aided by a seasonally favourable current account balance, which could result in a full-year BoP deficit of around $20 billion for FY25-26.