India’s external accounts have deteriorated modestly, though less than expected. Data released by the RBI showed that the current account deficit (CAD) widened to $13.2 billion or 1.3% of GDP, in Dec quarter of FY26 from $11.3 billion (1.1% of GDP) a year earlier.The slippage was driven largely by merchandise trade, as exports to the US weakened and the trade deficit expanded to $93.6 billion from $79.3 billion.Services continued to provide support. Net services receipts rose to $57.5 billion from $51.2 billion, supported by computer and business services exports. Outflows under the primary income account, largely investment income payments, narrowed to $12.2 billion from $16.4 billion. Remittances remained resilient, with personal transfer receipts rising to $36.9 billion from $35.1 billion.The year-to-date picture is more positive than the quarterly figure suggests. For April–Dec 2025, the CAD moderated to $30.1 billion (1% of GDP), down from $36.6 billion (1.3% of GDP) a year earlier.Capital flows were mixed. Net foreign direct investment (FDI) recorded an outflow of $3.7 billion in the quarter, slightly higher than a year earlier. Foreign portfolio investment (FPI) saw a marginal net outflow of $0.2 billion, far smaller than the $11.4 billion withdrawn in the same quarter last year.Non-resident deposits brought in $5.1 billion, up from $3.1 billion, while external commercial borrowings moderated to $3.3 billion from $4.4 billion. Foreign-exchange reserves fell by $24.4 billion on a balance-of-payments basis, less than the $37.7 billion depletion ayear ago.Economists differ on the outlook. Kaushik Das of Deutsche Bank says a $20 billion rise in the CAD, driven by higher oil prices, could push the balance of payments back into a $20 billion deficit in FY27, renewing depreciation pressure on the rupee if capital inflows remain weak. Even so, he retains a year-end USD/INR target of 90, noting that the 40-currency trade-weighted real effective exchange rate stands at 94.7 and that geopolitical tensions may ease. With $724 billion in foreign-exchange reserves, the RBI, in his view, has room to curb excessive volatility.“From a deficit of $10.9 billion in Q2. With today’s print, the FY25-26 (April-Dec) BoP stands at a $30.8 billion deficit. We expect a moderation in Q4 (owing to a seasonally favourable current account balance) to result in a full-year BoP deficit of $20 billion in FY25-26,” said Astha Gudwani, an economist with Barclays.
