India's current account deficit (CAD) is expected to remain around 1% of GDP in fiscal year 2025, supported by strong financial inflows and a steady services trade surplus. Despite rising merchandise trade deficits, healthy remittances and foreign portfolio investments (FPI) have helped maintain stability, according to a CRISIL report.
In Q2 FY2025, India's CAD stood at USD 11.2 billion (1.2% of GDP), largely unchanged from USD 11.3 billion (1.3% of GDP) in the same period the previous year. However, the CAD widened slightly from USD 10.2 billion (1.1% of GDP) in Q1 FY2025. The merchandise trade deficit rose to 8.2% of GDP, up from 7.5%, but was offset by a rise in the services trade surplus, which increased to 4.9% of GDP from 4.7%.
Financial inflows saw significant growth in Q2, driven by a surge in FPI to USD 19.9 billion, compared to USD 4.9 billion a year ago. Non-resident Indian (NRI) deposits and external commercial borrowings (ECBs) also increased sharply. However, net foreign direct investment (FDI) recorded outflows of USD 2.2 billion, up from USD 0.8 billion last year.
India's forex reserves grew by USD 18.6 billion during the quarter, although the rupee depreciated to 83.8 per dollar, from 82.7 in the same period last year. By December 20, 2024, forex reserves had declined to USD 644.4 billion from USD 692.3 billion at the end of Q2, as the Reserve Bank of India intervened to manage rupee volatility.