India’s current account deficit (CAD) moderated significantly in the July–September quarter of fiscal year 2025–26, helped by a marginally smaller merchandise trade deficit and robust growth in services exports, the Reserve Bank of India (RBI) reported on Monday (1).
The CAD for the second quarter stood at $12.3 billion, equivalent to 1.3 per cent of GDP, marking a notable improvement from the $20.8 billion deficit, or 2.2 per cent of GDP, recorded in the same period last year.
Although the deficit widened compared with the previous quarter, which saw a modest shortfall of $2.4 billion (0.2 per cent of GDP), the year-on-year moderation reflects stronger external sector performance in several key areas.
A major driver of this improvement was the slight narrowing in the merchandise trade deficit. India’s goods trade gap reduced to $87.4 billion, down from $88.5 billion a year earlier. According to Sakshi Gupta, principal economist at HDFC Bank, the moderation was aided by the frontloading of goods exports to the United States, as well as continued resilience in the country’s services sector.
Services exports remained one of the economy’s strongest pillars during the quarter. Net services receipts climbed to $50.9 billion, compared with $44.5 billion in the same quarter of the prior year. The RBI noted broad-based growth across major service categories, particularly computer services and other business services, both traditionally high-performing segments for India.
Remittances, classified as private transfer receipts, also provided a boost to the external account. These inflows rose to $38.2 billion, up from an upwardly revised $34.4 billion a year ago, reflecting continued strength in overseas employment trends for Indian workers.
Despite the recovery in the current account position, India’s balance of payments (BoP) switched to a $10.9 billion deficit, in contrast to the $18.6 billion surplus recorded in the corresponding period last year. The shift suggests that financial flows did not keep pace with the improvement in the current account.
Looking ahead, HDFC’s Gupta expects the services sector to remain a supportive force for the current account. However, she cautioned that the impact of new tariffs on goods exports, combined with the fading effect of frontloaded shipments, could introduce fresh challenges. For the full fiscal year, she projects the CAD to settle around 1.1 per cent of GDP, with the overall balance of payments likely to remain negative.
