Key Highlights
- Current account deficit rose to $11.5 billion (1.1% of GDP) in Oct‑Dec 2024, down from a peak of $16.7 billion in the preceding quarter.
- Merchandise trade gap widened to $79.2 billion, though a seasonal export boost is expected to tighten it in Q4.
- Foreign exchange reserves have climbed by $311 billion since Dec 2018, the steepest increase recorded under any RBI governor.
- Balance of payments posted a $37.7 billion outflow, reversing the $6 billion surplus seen a year earlier.
- Full‑year FY25 CAD is projected at roughly 0.8% of GDP, with a modest rise to about 1.0% anticipated for FY26.
Detailed Insights
The RBI’s quarterly bulletin shows that the current account gap widened to $11.5 billion in Q3 FY25, representing 1.1% of national output. Although this figure exceeds the $10.4 billion recorded in the same period last year, it marks a sharp contraction from the $16.7 billion (1.8% of GDP) registered in Q2 FY25, indicating a nascent stabilisation trend.
Trade statistics reveal a merchandise deficit of $79.2 billion, up from $71.6 billion a year ago. Exporters anticipate a seasonal surge in the fourth quarter that could narrow this gap, while import demand remains robust.
On the external asset front, India’s foreign exchange holdings expanded by $311 billion since December 2018, constituting the most pronounced rise under any RBI governor. This accumulation has provided a buffer against external shocks.
Conversely, the balance of payments suffered a $37.7 billion depletion in Q3 FY25, a stark contrast to the $6 billion surplus recorded in Q3 FY24. The cumulative CAD for April‑December FY25 stood at $37 billion (1.3% of GDP), higher than the $30.6 billion (1.1% of GDP) registered in the previous fiscal year.
Component‑wise, net services receipts climbed to $51.2 billion, private transfers (remittances) rose to $35.1 billion, and primary income outflows increased to $16.7 billion. NRI deposit inflows slipped to $3.1 billion, while foreign portfolio investment shifted to a net outflow of $11.4 billion. External commercial borrowings registered a net inflow of $4.3 billion, reversing a $2.7 billion outflow a year earlier.
Key Concepts
- Current Account Deficit (CAD): The net balance of trade in goods and services, primary income, and secondary income; a negative figure indicates that a country imports more than it exports.
- Balance of Payments (BoP): A comprehensive record of all economic transactions between residents of a country and the rest of the world over a specific period.
- Foreign Exchange Reserves: Accumulated foreign currency assets held by the central bank, used to manage exchange rates and provide liquidity.
- Merchandise Trade Deficit: The shortfall when the value of imported goods exceeds that of exported goods.
- External Commercial Borrowings (ECBs): Loans raised by Indian borrowers from foreign lenders, usually denominated in foreign currency.