India's Current Account Deficit Shrinks to USD 12.3 Billion in Q2 FY 2025-26

India's current account deficit significantly narrowed to USD 12.3 billion in Q2 of FY 2025-26, with a notable rise in exports. Despite a depletion of foreign reserves, net FDI inflows surged, reversing past outflows. FPI experienced net outflows, while invisible exports improved, balancing the trading landscape.

India has reported a significant reduction in its current account deficit, which dropped to USD 12.3 billion for the second quarter of the fiscal year 2025-26, according to the Reserve Bank of India's preliminary balance of payments data. This compares to a USD 20.8 billion deficit during the same quarter one year ago.

The merchandise trade deficit showed a slight improvement, resting at USD 87.4 billion in contrast to USD 88.5 billion in the previous year. Export growth played a key role, helping to control the deficit. However, foreign exchange reserves experienced a depletion of USD 10.9 billion, against an increase of USD 18.6 billion in the comparable period last year.

Notably, net Foreign Direct Investment (FDI) figures surged to USD 2.9 billion, signifying a reversal from the net outflow of USD 2.8 billion observed a year earlier. Additionally, Foreign Portfolio Investment (FPI) saw net outflows of USD 5.7 billion, a stark contrast to USD 19.9 billion in inflows from the previous year. Meanwhile, net services receipts soared to USD 50.9 billion, driven by computer and business services. The RBI anticipates a potentially manageable current account deficit due to seasonal gold import fluctuations.

(With inputs from agencies.)