Lower merchandise trade gap helps contain CAD at 1.3% of GDP, says RBI
CAD shrinks on easing trade deficit
India’s current account deficit (CAD) fell to $12.3 billion, or 1.3% of GDP, during July–September 2025 (Q2 FY26), according to data released by the Reserve Bank of India (RBI) on Monday. The improvement was attributed primarily to a lower merchandise trade deficit, signalling more stable external sector dynamics.
Comparison with previous quarters
The CAD in Q2 FY26 is significantly lower than:
- $20.8 billion (2.2% of GDP) recorded in Q2 FY25
- $2.4 billion (0.2% of GDP) posted in Q1 FY26
While the figure is higher than the Q1 number, the year-on-year moderation reflects a better balance of payments position due to easing import pressures and resilient service exports.
Merchandise trade remains the key driver
The RBI noted that the moderation in the merchandise trade deficit was the main factor behind the improvement. Key reasons include:
- Softening global commodity prices, especially crude oil
- Slight export recovery in sectors like electronics and pharmaceuticals
- Tighter import controls on non-essential goods
A narrowing goods trade gap supported better external financing and reduced strain on the rupee, despite recent currency volatility.
Outlook: Signs of resilience amid global uncertainty
Analysts see the CAD at sustainable levels, especially with continued strength in service exports and remittance inflows. However, global headwinds — including elevated oil prices, sluggish demand in Western economies, and geopolitical tensions — remain downside risks.
The CAD’s containment is also critical for rupee stability, foreign investor sentiment, and the RBI’s monetary policy space in the quarters ahead.
