Q2 current account deficit widens to 1.3% of GDP against 0.2% in Q1 FY26
Merchandise trade deficit in the reporting quarter was lower at $87.4 billion against $88.5 billion in the year ago quarter.
| Photo Credit:
FRANCIS MASCARENHAS
India’s current account deficit (CAD) widened to $12.3 billion in the second quarter (Q2FY26) from the preceding quarter’s (Q1FY26) $2.4 billion due to a host of factors such as foreign portfolio investment (FPI) recording a net outflow, lower net inflows via external commercial borrowings (ECBs) and NRI deposits and depletion in forex reserves, among others.
However, CAD in the reporting quarter moderated from $20.8 billion recorded in the year ago quarter (Q2FY25).
CAD is a measure of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
In percentage terms, the Q2FY26 CAD increased to 1.3 per cent of GDP as compared to 0.2 per cent in the preceding quarter but was lower than year ago quarter’s 2.2 per cent.
Aditi Nayar, Chief Economist, ICRA, said: “While the current account deficit expectedly widened in Q2FY2026, it undershot our forecast of $17 billion primarily on account of a slightly lower goods deficit and stronger-than-expected remittance flows.”
Looking ahead, she opined that the spike in gold imports in October is likely to bloat the ongoing quarter’s current account deficit considerably to above 2.5 per cent 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, we foresee India’s current account deficit at a relatively manageable 1.1-1.2 per cent of GDP in FY2026,” Nayar said.
Merchandise trade
Merchandise trade deficit in the reporting quarter was lower at $87.4 billion against $88.5 billion in the year ago quarter.
Net services receipts increased to $50.9 billion in Q2FY26 from $44.5 billion a year ago.
Services exports have risen on a year-on-year (yoy) basis in major categories such as computer services and other business services, RBI said in a statement.
Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $12.2 billion in Q2FY26 from $9.2 billion in Q2FY25.
Personal transfer receipts, FDI, FPI
Personal transfer receipts under secondary income account, mainly representing remittances by Indians employed overseas, rose to $38.2 billion in Q2FY26 from $34.4 billion in Q2FY25.
Net foreign direct investment (FDI) inflows recorded a net inflow of $2.9 billion in Q2FY26 against a net outflow of $2.8 billion in Q2FY25. Foreign portfolio investment (FPI) recorded a net outflow of $5.7 billion in Q2FY26 as against a net inflow of $19.9 billion in Q2FY25.
ECBs, NRI deposits, Fx Reserves
Net inflows under external commercial borrowings (ECBs) to India was lower at $1.6 billion in Q2FY26, compared with $5 billion in the corresponding period a year ago.
Non-resident deposits (NRI deposits) recorded lower inflows of $2.5 billion against $6.2 billion a year ago.
There was a depletion of $10.9 billion to the foreign exchange reserves (on a Balance of Payments basis) in Q2FY26 as against an accretion of $18.6 billion in Q2FY25.
Published on December 1, 2025
