Trends & Tides – Balance of Payments Q3FY25
India’s current account recorded a deficit of 1.1% of GDP in Q3FY25, compared to 1.8% in the previous quarter and 1.1% in Q3FY24. The current account improved due to a lower merchandise deficit and a higher services surplus.
The merchandise trade deficit declined in Q3FY25, as a lower core deficit and a reduced valuables deficit more than offset the higher petroleum deficit. Meanwhile, the services surplus witnessed a broad-based improvement.
The capital account recorded a deficit of US$26.8 bn in Q3FY25, shifting from a surplus of US$36.1 bn in the previous quarter. The deficit was driven by substantial Foreign Portfolio Investment (FPI) equity outflows during the December quarter, along with banking capital outflows. Net Foreign Direct Investment (FDI) also remained in deficit.
Overall, the Balance of Payments (BoP) recorded a deficit of US$37.7 bn from a surplus of US$18.6 bn in the previous quarter. However, India’s forex reserves decreased by US$70.1 bn in Q3FY25 due to an additional US$32.4 bn valuation loss caused by the strengthening of the dollar.
The current account deficit is expected to be around 0.9% of GDP in FY25 and 1.2% of GDP in FY26. However, an escalation in trade disputes or the imposition of reciprocal tariffs pose significant risks to the outlook.
