New Delhi: India’s current account deficit (CAD) is set to remain in a safe zone at around 1 per cent of GDP for fiscal 2025, up from 0.7 per cent last year, according to a CRISIL report.
While geopolitical risks will require close monitoring, stability is expected from strong fiscal inflows and a stable services trade surplus.
India’s current account deficit (CAD) remained largely stable at USD 11.2 billion or 1.2 percent of GDP in the second quarter (Q2) of fiscal 2025, compared to USD 11.3 billion (1.3 percent of GDP) in the corresponding period last year. The year
However, sequentially, CAD rose marginally to USD 10.2 billion (1.1 percent of GDP) in the first quarter, as reported by the Reserve Bank of India.
Despite pressure from a widening trade deficit, strong services exports and healthy remittances helped keep the CAD manageable.
The overall trade deficit widened to 3.4 percent of GDP in the second quarter of fiscal 2025 from 2.9 percent in the year-ago period, with the trade deficit widening to 8.2 percent of GDP from 7.5 percent. Meanwhile, the services trade surplus widened to 4.9 percent from 4.7 percent.
Additionally, the primary income account deficit narrowed to 1 percent of GDP from 1.4 percent, while the secondary income account surplus increased to 3.2 percent from 2.9 percent.
Financial inflows witnessed a significant growth during the quarter due to strong foreign portfolio investment (FPI). Net FPI inflows reached USD 19.9 billion, up from USD 4.9 billion in the same period last year. This includes equity inflows of USD 10.7 billion and debt inflows of USD 9.1 billion.
Other investments, including non-resident Indian (NRI) deposits and external commercial borrowings (ECBs) also rose sharply. NRI deposits rose to USD 6.2 billion, against USD 3.2 billion a year ago, while net ECBs outflows rose to USD 5 billion from USD 1.9 billion in Q2 FY2024. went
Net foreign direct investment (FDI), however, recorded outflows of USD 2.2 billion, almost three times higher than USD 0.8 billion in Q2 FY2024, leading to higher FDI of USD 23.5 billion. Due to the emission of
India’s foreign exchange reserves grew to USD 18.6 billion during the quarter, a significant increase from USD 2.5 billion in Q2 FY2024. However, the rupee depreciated to 83.8 per dollar in the second quarter of fiscal 2025, from 82.7 per dollar in the same period last year.
Since then, foreign exchange reserves have declined, falling to USD 644.4 billion as of December 20, 2024, down from USD 692.3 billion at the end of the second quarter, as the Reserve Bank of India cut Rs. intervened to manage volatility.