New Delhi [India], December 3 (ANI): India’s current account deficit (CAD) widened sequentially to USD 12.3 billion, or 1.3% of GDP, in the second quarter of FY26, driven primarily by a sharp rise in the merchandise trade gap despite robust growth in services exports and remittances. The CAD had stood at 0.3% of GDP in the previous quarter.
Analysts from Crisil, ICICI Bank Research, and Emkay Global highlighted that the merchandise deficit expanded as gold imports surged nearly 150% quarter-on-quarter, reaching USD 19 billion in Q2, while goods exports declined sequentially following the imposition of higher US tariffs on Indian shipments. Overall, goods exports were about USD 109 billion, while imports rose to nearly USD 197 billion.
Services exports grew in double digits, with Crisil estimating IT and business services receipts at USD 101.6 billion for the quarter. Net services exports increased 14% year-on-year, while remittances climbed to USD 36–39 billion, partially offsetting the wider goods deficit.
The capital account surplus moderated sharply to USD 0.6 billion, or 0.1% of GDP, compared with USD 8 billion in the previous quarter. Emkay Global cited weaker foreign inflows across both FDI and FPI, noting that foreign portfolio investors recorded net outflows while foreign direct investment inflows remained subdued. ICICI Bank Research also pointed to softer loan disbursements and reduced external assistance.
With financial flows weakening, India’s balance of payments slipped into a deficit of USD 11 billion in Q2 FY26. The Reserve Bank of India’s foreign exchange reserves saw an overall drawdown of USD 10.9 billion during the quarter on a BoP basis.
Emkay Global revised its full-year FY26 CAD projection upward to 1.4% of GDP from 1.2%, citing expectations of negative export growth (-7%) through the year and stronger non-oil import growth driven partly by gold imports, projected to rise 22% in FY26. Analysts noted that healthy net services exports will cushion the impact of the wider goods deficit, but volatile foreign flows could keep the BoP under pressure, potentially resulting in a USD 22–23 billion deficit for the full year.
Analysts expect the rupee to retain a weakening bias. Emkay suggested that policy preferences appear to be shifting toward a softer currency to offset the tariff-driven export shock, projecting USD/INR to trade in the 88–91 range until the end of FY26, depending on the evolution of U.S.-India tariff negotiations. Crisil and ICICI Bank also flagged that global headwinds, elevated tariffs, and strong domestic demand will continue to pressure external balances in the coming quarters, even as services strength and remittances provide resilience. (ANI)
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