In a recent statement released by the Reserve Bank of India, it was revealed that India's current account experienced a deficit in the April-June quarter. The deficit was primarily driven by a higher shortfall in merchandise trade, resulting in a deficit of $2.4 billion, equivalent to 0.2% of GDP for the fiscal year 2025-26. This marks a significant shift from the surplus of $13.5 billion recorded in the previous quarter.
The merchandise trade deficit widened to $68.5 billion from $63.8 billion a year earlier, reflecting front-loaded exports to the U.S. and strong services exports. Madhavi Arora, lead economist at Emkay Global, noted that while there were positive factors contributing to the current account deficit (CAD), potential risks from tariff impacts on labor-intensive sectors could lead to a CAD/GDP ratio exceeding 1.2% in the fiscal year 2025-26.
India's net services receipts saw a notable increase to $47.9 billion in the first fiscal quarter, driven by growth in business services and computer services exports. Additionally, personal transfer receipts, mainly remittances from overseas Indians, rose to $33.2 billion compared to $28.6 billion in the previous year.
Despite the current account deficit, India's balance of payments recorded a surplus of $4.5 billion in the June quarter. However, concerns about a potential negative impact on the balance of payments in the second quarter of the fiscal year 2025-26 were raised due to a slowdown in foreign portfolio investor flows and a further widening trade deficit.
Gaura Sen Gupta, chief economist at IDFC First Bank, highlighted that if the current situation with U.S. tariffs persists, the current account deficit could rise to 1.3% of GDP. Additionally, the RBI's decision to reduce its forward book may put pressure on the rupee's value, with near-term projections ranging between 87.50 and 89 against the dollar.
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