Meaning
Current Account Deficit arises when a country’s payments on the current account exceed its receipts. It means the country is spending more foreign exchange on imports, income payments and transfers than it earns through exports, services, remittances and other current receipts.
The current account includes:
- trade in goods
- trade in services
- primary income such as interest, profits and dividends
- secondary income such as remittances
For India, CAD is mainly driven by the merchandise trade deficit, while services exports and remittances reduce the pressure.
Latest Data
The latest official CAD data released by RBI is for Q3 FY26, covering October–December 2025.
- India’s CAD stood at US$ 13.2 billion, or 1.3% of GDP, in Q3 FY26.
- In Q3 FY25, CAD was US$ 11.3 billion, or 1.1% of GDP.
- Merchandise trade deficit widened to US$ 93.6 billion, compared with US$ 79.3 billion a year earlier.
- Net services receipts remained strong at US$ 57.5 billion.
- Private transfer receipts, mainly remittances, stood at US$ 40.8 billion.
For April–December 2025, CAD stood at US$ 30.1 billion, or 1.0% of GDP, compared with US$ 36.6 billion, or 1.3% of GDP, in April–December 2024.
The latest monthly trade data for April 2026 shows continued pressure from goods trade:
- total exports: US$ 80.80 billion
- total imports: US$ 88.61 billion
- overall trade deficit: US$ 7.81 billion
- merchandise exports: US$ 43.56 billion
- merchandise imports: US$ 71.94 billion
- merchandise trade deficit: US$ 28.38 billion
- services exports: US$ 37.24 billion
- services imports: US$ 16.66 billion
Why India Faces CAD
- Crude oil imports: India imports a large share of its crude oil requirement, making CAD sensitive to global oil prices.
- Gold imports: Gold demand increases the import bill without directly improving productive capacity.
- Electronics and capital goods imports: These support consumption and investment, but also widen the goods deficit.
- Weak merchandise export growth: Slower global demand or low export competitiveness reduces foreign exchange earnings.
- Primary income outflows: Profits, dividends and interest payments to foreign investors create pressure on the current account.
Why CAD Remains Manageable
India’s CAD is cushioned by strong invisible receipts.
- Services exports, especially IT and business services, generate a large surplus.
- Remittances from overseas Indians provide stable foreign exchange.
- CAD at 1.0% of GDP during April–December 2025 remains within a comfortable range.
- A CAD around 2% of GDP is generally considered manageable if financed through stable capital inflows.
Impact of High CAD
- It can put pressure on the rupee.
- It may increase imported inflation, especially through oil and fertilisers.
- It can reduce foreign exchange reserves if capital inflows are weak.
- It increases vulnerability to global shocks and capital outflows.
- It may affect investor confidence if it becomes large and persistent.
Policy Measures
- promote merchandise exports in electronics, engineering goods, pharmaceuticals, textiles and chemicals
- diversify services exports beyond IT into finance, education, healthcare, consulting and digital services
- reduce oil dependence through renewable energy, ethanol blending, EVs and energy efficiency
- reduce excessive gold imports through better financial savings options
- strengthen domestic manufacturing in electronics, semiconductors, defence, fertilisers and capital goods
- attract stable FDI rather than relying heavily on volatile portfolio flows
- maintain adequate foreign exchange reserves
Conclusion
India’s CAD is currently manageable but structurally sensitive. The latest official data shows CAD at US$ 13.2 billion, or 1.3% of GDP, in Q3 FY26, and US$ 30.1 billion, or 1.0% of GDP, during April–December 2025.
The main pressure comes from the goods trade deficit, while services exports and remittances provide stability. The long-term solution lies in reducing import dependence, strengthening exports, improving energy security and ensuring stable external financing.
