At $11.5 billion, or 1.1% of gross domestic product (GDP), India’s current account deficit (CAD) was largely stable in the third quarter of fiscal 2025, compared with $10.4 billion, or 1.1% of GDP, in the corresponding year-ago quarter.

Sequentially, the deficit narrowed from $16.7 billion, or 1.8% of GDP, in the second quarter of fiscal 2025.

While the merchandise trade defict worsened during the third quarter, there was counter-balancing from an improvement in services surplus and remitances.

But foreign capital saw a net outflow during the third quarter, as opposed to a net inflow in the year-ago period. This was reflected in the 1.6% depreciation of the rupee to 84.5 per dollar in the third quarter from 83.2 in the corresponding quarter last fiscal.

Within the financial accounts, all subcomponents saw outflows, with the maximum from the net foreign portfolio investor (FPI) segment amounting to $11.4 billion. Other investments¹ saw outflows for the first time since the second quarter of fiscal 2023.

The net outflow from the financial account even as the current account was in deficit meant a hit to India’s forex reserves, which decreased by $37.7 billion during the third quarter.

Looked another way, this indicates the Reserve Bank of India’s intervention in the forex market by way of US dollar sales to contain the sharp rupee volatility during the quarter.The situation has since somewhat stabilised. As a result, India’s forex reserves rebounded to $658.8 billion as on March 21, 2025, from $644.4 billion at the end of the third quarter.

Even as merchandise trade deficit has come under some pressure, robust services exports and healthy remittances flow should help keep CAD in the safe zone this fiscal. We project CAD to be only marginally higher at 1.3% of GDP in fiscal 2026, as against an estimated 1.0% of GDP in fiscal 2025. That said, the impact of geopolitical issues will remain a monitorable.

¹Comprises non-resident Indian (NRI) deposits, external commercial borrowings (ECBs), other loans and trade credit