New Delhi [India], December 1 (ANI): India’s current account deficit (CAD) narrowed sharply to USD 12.3 billion, or 1.3% of GDP, in the second quarter of FY 2025-26, down from USD 20.8 billion (2.2% of GDP) in the same period last year, according to preliminary balance of payments data released by the Reserve Bank of India (RBI) on Monday.
The merchandise trade deficit moderated slightly to USD 87.4 billion in Q2, compared with USD 88.5 billion a year earlier. While both exports and imports grew, higher exports helped contain the deficit. India’s foreign exchange reserves, on a BoP basis, saw a depletion of USD 10.9 billion in Q2, in contrast to an increase of USD 18.6 billion in the same quarter last year.
Net foreign direct investment (FDI) inflows surged to USD 2.9 billion, reversing a net outflow of USD 2.8 billion a year earlier. In contrast, foreign portfolio investment (FPI) showed a net outflow of USD 5.7 billion, compared with USD 19.9 billion in net inflows last year. Net inflows of External Commercial Borrowings (ECBs) totalled USD 1.6 billion, down from USD 5.0 billion in Q2 FY 2024-25, while net inflows in NRI deposits stood at USD 2.5 billion, compared with USD 6.2 billion last year.
Services exports remained robust, with net receipts rising to USD 50.9 billion from USD 44.5 billion a year earlier, supported by computer services and other business services. Outflows under the primary income account, mainly investment income payments, increased to USD 12.2 billion from USD 9.2 billion in Q2 FY 2024-25.
Aditi Nayar, Chief Economist at ICRA, noted, “While the current account deficit widened in Q2 FY2026, it undershot our forecast of ~USD 17 billion, primarily due to a slightly lower goods deficit and stronger-than-expected remittance flows.” She added that a spike in gold imports in October 2025 may increase the CAD in the ongoing quarter above 2.5% of GDP but expected the deficit to moderate in the coming months.
For the first half of FY 2025-26, India’s CAD fell to USD 15.0 billion (0.8% of GDP) from USD 25.3 billion (1.3% of GDP) a year earlier, aided by higher services exports and remittances. Net FDI more than doubled to USD 7.7 billion, while FPI flows reversed with net outflows of USD 4.1 billion, compared with inflows of USD 20.8 billion last year. During the same period, foreign exchange reserves declined by USD 6.4 billion, contrasting with an accretion of USD 23.8 billion in H1 of the previous fiscal.
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