India's CAD widened to 1.3% of GDP in Q3FY26 on higher trade deficit

India's current account deficit widened to $13.2 billion in Q3FY26 as the trade gap expanded, though higher services receipts, lower investment outflows and stronger remittances provided some support

India’s current account deficit (CAD) widened to $13.2 billion, or 1.3 per cent of gross domestic product (GDP), in the October-December quarter (Q3FY26) on the back of a higher merchandise trade deficit, according to data released by the Reserve Bank of India (RBI) on Monday.

 

The CAD stood at $11.3 billion, or 1.1 per cent of GDP, in Q3FY25.

 

The merchandise trade deficit expanded to $93.6 billion in Q3FY26, compared with $79.3 billion in the year-ago quarter.

 

“Not only did current account deficit widened (amid unfavourable seasonality) vs Q2, but the capital account also registered a deficit, weighing on the BoP deficit, which further widened to $24.4bn (Q2: -$10.9bn),” Barclays said in a report.

 

The capital account balance moved to a deficit of $10bn in Q3, from a surplus of $ 2.1bn in Q2. This was driven by net ouflows from both FDI and FPI channels.

 

“For a country with a current account deficit and a large oil import bill (27% of total imports), oil price shocks can quickly put further stress on BoP dynamics,” the report said whole commenting on oil shock amid rising tensions in the Middle East.

 

Icra Chief Economist Aditi Nayar said the unusually higher-than-expected merchandise trade deficit for January is likely to limit the seasonal improvement in the current account balance in Q4, unless the prints for February and March cool significantly.

 

She added that the recent surge in international crude oil prices, following the escalation of conflict in West Asia, is also likely to have some bearing on the import bill in the immediate term.

 

According to the RBI data, net services receipts rose to $57.5 billion, from $51.2 billion a year earlier, supported by growth in exports of computer services and other business services.

 

Net outgo on the primary income account, mainly reflecting investment income payments, declined to $12.2 billion in Q3FY26 from $16.4 billion in Q3FY25.

 

Personal transfer receipts, representing remittances by Indians employed overseas, increased to $36.9 billion during the quarter from $35.1 billion a year ago.

 

On the financial account, foreign direct investment (FDI) recorded a net outflow of $3.7 billion in Q3FY26, higher than the net outflow of $2.8 billion in Q3FY25. Foreign portfolio investment (FPI) saw a marginal net outflow of $0.2 billion, sharply lower than the $11.4 billion net outflow in the year-ago quarter.

 

Among other components, non-resident Indian (NRI) deposits registered a net inflow of $5.1 billion, compared with $3.1 billion a year ago. Net inflows under external commercial borrowings stood at $3.3 billion, lower than $4.4 billion in Q3FY25.

 

Foreign exchange reserves declined by $24.4 billion on a balance of payments basis in Q3FY26, compared with a depletion of $37.7 billion in the year-ago quarter.