India’s current account deficit widened in December quarter on large trade gap

India's current account deficit widened in the October-to-December quarter on the back of a higher merchandise trade deficit, the Reserve Bank of India said on Monday.

The current account deficit stood at $13.2 billion, or 1.3% of GDP, in the third quarter of fiscal year 2025-26, compared with $11.3 billion, or 1.1% of GDP, a year earlier.

In the preceding quarter, the deficit was $12.3 billion, or 1.3% of GDP.

The October-December quarter saw the Indian economy face the brunt of U.S. trade tariffs of up to 50%, dampening export growth. Meanwhile, rising prices and shipments of gold pushed up imports.

Although India saw U.S. tariffs reduced after a trade agreement with Washington and a ruling by the country's Supreme Court, fresh risks have emerged as an escalating conflict in the Middle East has driven oil prices higher.

"The impact of the current conflict on the current account will only be felt if higher oil prices are sustained," said Gaura Sen Gupta, chief economist at IDFC First Bank in Mumbai.

Since the starting point of the current account deficit is low, only a 12-month sustained period of crude oil at $80 per barrel will push the deficit to 2% of GDP, she said.

India's merchandise trade deficit widened to $93.6 billion from $79.3 billion a year earlier, the RBI said.

Net services receipts rose to $57.5 billion in the quarter from $51.2 billion a year earlier, the data showed.

Private transfer receipts, which are mainly remittances by Indians employed overseas, increased to $36.9 billion in the quarter from $31.5 billion a year earlier.

India's balance of payments recorded a deficit of $24.4 billion, compared with a deficit of $37.7 billion a year earlier as capital outflows eased marginally.

Pressure on the Indian rupee continues to stem from the capital account, Sen Gupta said. However, in the next quarter, the balance of payments may be marginally positive because of $20 billion in dollar/rupee buy-sell swaps conducted by the central bank, she said.

These swaps, aimed at replenishing rupee liquidity taken out due to dollar sales to support the rupee, add to India's forex reserves until they are reversed.