India's Current Account Deficit Expands in December Quarter Amid Worsening Trade Disparities

India's Current Account Deficit Widens in Q3 FY 2025-26

Current Account Deficit (CAD): The Reserve Bank of India (RBI) reported a CAD of $13.2 billion (1.3% of GDP) in the October-December quarter of fiscal year 2025-26, up from $11.3 billion (1.1% of GDP) in the same quarter a year earlier.

Merchandise Trade Deficit: The merchandise trade deficit widened to $93.6 billion in the quarter, from $79.3 billion a year earlier, driven by U.S. trade tariffs of up to 50% and rising gold imports. Net services receipts rose to $57.5 billion, while private transfer receipts increased to $36.9 billion.

Balance of Payments: India's balance of payments recorded a deficit of $24.4 billion, down from $37.7 billion a year earlier, as capital outflows eased marginally. The RBI conducted $20 billion in dollar/rupee buy-sell swaps to replenish rupee liquidity, which may result in a marginally positive balance of payments in the next quarter.

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Risks Ahead: The escalating conflict in the Middle East has driven oil prices higher, posing a risk to the current account deficit. However, according to Gaura Sen Gupta, chief economist at IDFC First Bank, the impact of the conflict will only be felt if higher oil prices are sustained. Only a 12-month sustained period of crude oil at $80 per barrel will push the deficit to 2% of GDP, she said.