MUMBAI: The Reserve Bank has said the current account deficit (CAD), which is the gap between forex earned through exports and spending on imports, narrowed to $12.3 billion or 1.3% of GDP in the second quarter of FY26. This is much lower than the $20.8 billion or 2.2% in the same period a year ago but massively up from the first quarter when it was just $2.4 billion or 0.2%. In the fourth quarter of FY25, the CAD was at a surprise surplus of $13.5 billion or 1.3% of GDP.
The central bank said Monday in its data on developments in balance of payments during Q2 that the merchandise trade deficit stood at $87.4 billion in Q2, lower than $88.5 billion in Q2 ofFY25 while net services receipts increased to $50.9 billion from $44.5 billion a year ago.
The central bank also said it has revised upwards the CAD for Q2FY25 to $20.8 billion (or 2.2% of GDP) from $16.8 billion (1.8%) due to downward revision of exports in the Customs data. In Q1FY26, the CAD stood at $2.7 billion (or 0.3% of GDP).
The RBI further said services exports have also risen on an on-year basis in major categories such as computer services and other business services.
Net outgo on the primary income account, mainly reflecting payments of investment income, increased to $12.2 billion from $9.2 billion a year ago, while personal transfer receipts under secondary income account, mainly representing remittances by expats, rose to $38.2 billion from $34.4 billion on-year.
In the financial account, foreign direct investment recorded a net inflow of $2.9 billion as against a net outflow of $2.8 billion in the corresponding period of last fiscal, while foreign portfolio investment recorded a net outflow of $5.7 billion as against a net inflow of $19.9 billion.
Net inflows under external commercial borrowings amounted to $1.6 billion compared to net inflows of $5 billion in the corresponding period a year ago.
Non-resident deposits (NRI deposits) saw net inflow declining steeply to $2.5 billion from $6.2 billion a year ago.
There was a depletion of $10.9 billion to the foreign exchange reserves (on a BoP basis) during the reporting period as against an accretion of $18.6 billion in Q2FY25, the central bank data showed.
From a half-yearly perspective, the CAD declined to $15 billion (0.8% of GDP) in H1FY26 from $25.3 billion or 1.3% in the same period a year ago.
Net invisibles receipts at $141.3 billion were higher in H1 than the $123 billion a year ago, primarily on account of net services receipts and net personal transfers. Net FDI inflows also increased to $7.7 billion from $3.4 billion. FPI recorded net outflows of $4.1 billion as against net inflows of $20.8 billion a year ago.
The forex reserves saw a depletion of $6.4 billion (on a BoP basis) as against an accretion of $23.8 billion in the corresponding period a year ago.
Commenting on the CAD data, Aditi Nayar, the chief economist at Icra Ratings, said the CAD, despite a sequential expansion, is below her forecast of $17 billion primarily on account of a slightly lower goods deficit and stronger-than-expected remittance inflows.
Looking ahead, the spike in gold imports in October is likely to bloat the Q3 CAD considerably to above 2.5% of GDP. "With gold imports unlikely to sustain this surge in the coming months, we expect the monthly merchandise trade deficit figures to ease relative to the levels seen in October. Overall, FY26 CAD is manageable at 1.1-1.2% of GDP," she said.