India’s current account balance improved sequentially to -1.1% of GDP (USD -11.5 bn) in Q3 FY25 from -1.8% (USD -16.7 bn) in Q2
Download ReportQuantEco Research || Q3 FY25 BoP - Capital account shocks
India’s current account balance improved sequentially to -1.1% of GDP (USD -11.5 bn) in Q3 FY25 from -1.8% (USD -16.7 bn) in Q2. The accompanying net balance of payments switched to a deficit of 3.8% of GDP (USD -37.7 bn) in Q3 FY25 from a healthy surplus of 2.0% (USD 18.6 bn) in Q2. While offering some comfort, the data also raises concerns. The narrowing of the merchandise trade deficit along with continued structural improvement in services exports are key positives. Despite this, the worst recorded shock to the capital account resulted in a deficit on the BoP. Heightened geopolitical and geoeconomic uncertainty along with temporary deterioration in India’s growth-inflation balance during Q2-Q3 FY25 appears to have led to this outturn. For FY25, we expect BoP to record a deficit of USD 2 bn vs. a surplus of USD 64 bn in FY24 even as the CAD position is expected to be broadly unchanged at USD 27 bn in FY25 vs. USD 26 bn in FY24. For FY26, estimating trade, capital flows, and BoP is going to be extremely challenging. The US triggered trade war along with other policy interventions by the new administration in the field of labor/jobs, along with policy incentives for reviving domestic manufacturing, etc. will influence the BoP outcome for India. Amidst multiple moving parts and lack of any clarity, we retain our FY26 current account deficit and BoP forecast of -1.3% of GDP and USD 3 bn respectively for now.