MUMBAI: The current account deficit (CAD), which is the difference between forex earned from exports and forex spent on imports, widened to $13.2 billion or 1.3% of GDP in the quarter to December as the trade gap expanded, though higher services receipts, lower investment outflows and stronger remittances provided some support.
In the same quarter in the last fiscal, the gap was $11.3 billion or 1.1% of GDP, according to data released by the Reserve Bank on Monday.
The merchandise trade deficit expanded to $93.6 billion from $79.3 billion in the year-ago quarter, the central bank said, adding net services receipts rose to $57.5 billion from $51.2 billion, supported by growth in exports of computer services and other business services.
Net outgo on the primary income account, mainly reflecting investment income payments, declined to $12.2 billion from $16.4 billion a year ago, the central bank said.
Aditi Nayar, the chief economist at Icra Ratings, said, at $13.2 billion, the CAD is better than her forecast of $20 billion for the quarter. The undershooting was largely led by lower-than-expected merchandise trade deficit as well as primary income outflows.
Looking ahead, the unusually higher-than-expected trade deficit for January is likely to limit the seasonal improvement in the current account balance in Q4, unless the prints for February and March cool significantly.
Additionally, the surge in crude prices, following the escalation of conflict in West Asia, is also likely to have some bearing on the import bill in the immediate term. “We currently expect the current account balance to print between $1 billion and $1 billion in Q4,” Nayar said, adding for the full year, CAD is likely to print in at 0.6-0.7% of GDP, and rise thereafter to around 1% of GDP in FY27.
The RBI data furthers showed that personal transfer receipts, representing remittances from overseas, increased to $36.9 billion from $35.1 billion a year ago.
On the financial account, foreign direct investment recorded a net outflow of $3.7 billion, higher than the net outflow of $2.8 billion in Q3FY25. Foreign portfolio investments saw a marginal net outflow of $200 million, sharply lower than the $11.4 billion net outflow in the corresponding quarter last year.
Among other components, NRI deposits saw a net inflow of $5.1 billion, up from $3.1 billion a year ago, while net inflows under external commercial borrowings stood at $3.3 billion, lower than $4.4 billion.
Foreign exchange reserves declined by $24.4 billion on a balance of payments basis in Q3, much lower than the $37.7-billion depletion in the year-ago quarter.