India's CAD to remain in safe zone during 2025-26: Report

IANS April 2, 2025 217 views

India's current account deficit is expected to remain stable at 1.3% of GDP in 2025-26, according to a Crisil report. Strong services exports and overseas remittances are balancing the widening merchandise trade gap. The RBI's forex market interventions helped stabilize the rupee after a brief depreciation. Forex reserves have since recovered to $658.8 billion as of late March.

"Robust services exports and remittances will keep India's CAD in the safe zone" – Crisil Report
India's CAD to remain in safe zone during 2025-26: Report
New Delhi, April 2: Robust services exports and the inflow of healthy remittances from Indians working overseas will help keep India's current account deficit (CAD) in the safe zone during financial year 2025-26 even though the country's merchandise trade deficit has come under some pressure, according to a Crisil report released on Wednesday.

Key Points

1

CAD projected at 1.3% GDP in 2025-26

2

Services surplus offsets trade deficit pressure

3

Forex reserves rebound to $658.8 billion

4

RBI intervention stabilizes rupee volatility

The report projects CAD to be only marginally higher at 1.3 per cent of GDP in 2025-2026, as against an estimated 1 per cent of GDP in 2024-2025.

At $11.5 billion, or 1.1 per cent of gross domestic product (GDP), India's current account deficit (CAD) was largely stable in the third quarter of financial year 2024-25, compared with $10.4 billion, or 1.1 per cent of GDP, in the corresponding year-ago quarter, the report states.

Sequentially, the deficit narrowed from $16.7 billion, or 1.8 per cent of GDP, in the second quarter of fiscal 2025.

While the merchandise trade deficit worsened during the third quarter, there was counterbalancing from an improvement in services surplus and remittances from Indians working overseas.

The rise in merchandise trade deficit was mostly on account of worsening in oil trade balance, as exports fell and imports rose, the report points out.

Foreign capital saw a net outflow during the third quarter, as opposed to a net inflow in the year-ago period. This was reflected in the 1.6 per cent depreciation of the rupee to 84.5 per dollar in the third quarter from 83.2 in the corresponding quarter last fiscal, the report states.

Within the financial accounts, all subcomponents saw outflows, with the maximum from the net foreign portfolio investor (FPI) segment amounting to $11.4 billion. Other investments saw outflows for the first time since the second quarter of the fiscal year 2023.

The net outflow from the financial account even as the current account was in deficit meant a hit to India's forex reserves, which decreased by $37.7 billion during the third quarter.

However, this also indicates the Reserve Bank of India's intervention in the forex market by way of US dollar sales to contain the sharp rupee volatility during the quarter. The situation has since somewhat stabilised. As a result, India's forex reserves rebounded to $658.8 billion as of March 21, from $644.4 billion at the end of the third quarter, the report points out.

Reader Comments

R
Rahul K.
This is really encouraging news! Our services sector and remittances are truly carrying the economy. Makes me proud of our IT professionals and overseas workers. 🇮🇳
P
Priya M.
The numbers look stable but I'm concerned about the FPI outflows. That's $11.4 billion leaving our markets - shouldn't we be doing more to retain foreign investors?
A
Ankit S.
RBI did a great job stabilizing the rupee volatility. The forex reserves rebound to $658 billion is impressive! Shows our economy's resilience despite global challenges.
N
Neha P.
The oil trade balance is worrying though. With crude prices fluctuating, we need to focus more on renewable energy alternatives. This dependence on oil imports isn't sustainable long-term.
S
Sanjay T.
Good analysis by CRISIL as always. The 1.3% CAD projection seems manageable. Our services exports growth is the real hero here - shows the strength of our knowledge economy.
M
Meera R.
While the overall picture looks stable, I wish the report had more details about how the manufacturing sector is performing. That's crucial for job creation and balanced growth.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Tags:
India CAD Crisil report current account deficit forex reserves RBI trade deficit
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