MUMBAI: The current account deficit, which is primarily the difference between export earnings and import expenses, has narrowed to 1.1% of GDP or $11.5 billion in the third quarter of the outgoing fiscal, compared to 1.8% in the second quarter, boosted by higher earnings from services exports, show the data from the Reserve Bank on Friday.
In absolute terms CAD at $11.5 billion in the third quarter is higher than the deficit of $10.4 billion in Q3 of FY24.
Merchandise imports grew 6% in the third quarter to $186.7 billion, but a pick in demand helped exports rise to $109 billion and bring down goods trade deficit.
The services trade balance helped bring down the deficit further, the RBI said.
Merchandise trade deficit came down to a 42-month low of $14 billion in February, as both exports and imports dipped during the month.
Aditi Nayar, the chief economist at Icra Ratings said in absolute terms the deficit widened, albeit to a lower-than-expected $11.5 billion from $10.4 billion in the year-ago quarter, led by a higher merchandise trade deficit. She said she was expecting the deficit to print in a 1.4% of GDP for that quarter.
She expects the current account to witness a surplus of $4-6 billion in Q4FY2025, aided by a seasonal uptick in merchandise exports and the resulting moderation in the merchandise trade deficit, as well as healthy services surpluses.
“Overall, we expect the CAD to print at 0.8% of GDP in FY25, before expanding slightly to 1% in FY26, even as the tariff related uncertainty could act as a spoiler,” Nayar told TNIE.