India Q3FY25 CAD modest at 1.1%; but Q2 revised up to 1.8%

1 Apr 2025 , 09:07 AM

Q3FY25 CAD AT 1.1% OF GDP: BUT Q2 SPIKES BY 60 BPS

The current account deficit (CAD) for third quarter ended December 2024 was modest at 1.1%. However, the nasty surprise came from the Q2 CAD being revised up from 1.2% to 1.8% of GDP. That raises the risk that even Q3 could see a spike when it gets revised along with Q4 data. Here is chronological perspective of CAD.

Quarter	Current Account Balance
Quarter Ended December 2021	$(22.16) Billion
Quarter Ended March 2022	$(13.40) Billion
Quarter Ended June 2022	$(17.95) Billion
Quarter Ended September 2022	$(30.89) Billion
Quarter Ended December 2022	$(16.82) Billion
Quarter Ended March 2023	$(1.34) Billion
Quarter Ended June 2023	$(8.95) Billion
Quarter Ended September 2023	$(11.26) Billion
Quarter Ended December 2023	$(10.42) Billion
Quarter Ended March 2024	$4.59 Billion
Quarter Ended June 2024	(9.74) Billion
Quarter Ended September  2024	$(16.70) Billion
Quarter Ended December  2024	$(11.50) Billion

Data Source: DGFT / RBI (Previous figures revised where applicable)

The current account deficit (CAD) for Q3FY25 may look modest at $11.5 Billion or 1.1% of GDP. However, it must be noted that the Q2FY25 current account deficit has been sharply upped from $11.2 Billion to $16.7 Billion; literally moving the CAD ratio from 1.2% of GDP to 1.8% of GDP. Generally, such front-ending of CAD is quite rare. It does raise the risk of the Q3 and Q4 CAD eventually turning out higher than expected. We have to wait and watch!

HOW CAD BASKET SHAPED UP IN DECMBER 2024 QUARTER?

Here is the break-up of the current account deficit for the December 2024 quarter (Q3FY25) and how it shifted yoy compared to (Q3FY24).

Pressure on Current Account	Q3 FY25 Break-up	Q3 FY24 Break-up	Boost to Current Account	Q3 FY25 Break-up	Q3 FY24 Break-up
Trade Deficit	($79.20 bn)	($71.60 bn)	Services Surplus	+$51.20 bn	+$45.00 bn
Primary A/C – Interest	($16.70 bn)	($13.10 bn)	Secondary Income	+$33.20 bn	+$29.30 bn
Negative Thrust on CA	(-$95.90 bn)	(-$84.70 bn)	Positive Thrust on CA	+$84.40 bn	+$74.30 bn
		Current Account Surplus / (Deficit)		($11.50 bn)	(-$10.40 bn)

Data Source: RBI

Here are quick thoughts on CAD basket for Q3FY25.

• December 2024 merchandise trade deficit at $(79.20) Billion is higher compared to $(71.60) Billion in December 2023. The difference was largely accounted for by higher POL trade deficit, as the positive of Russian oil was starting to wane. Payouts on investments were also sharply higher in Q3FY25.
• On the positive side, the Q3FY25 services trade surplus at $51.20 Billion is well above $45.00 Billion in Q3 last year. More importantly, the secondary income representing remittances from abroad is higher by 13.3% yoy at $33.20 Billion, help check the CAD.

The good news is the offsetting impact of services surplus and inward remittances; even as goods deficit and interest payouts are higher. Of course, the real worry is the 60 bps uptick in Q2FY25 CAD from 1.2% to 1.8% of GDP.

CAD UPDATE FOR 9-MONTHS OF FY25

Here is the break-up of current account deficit for 9M-FY25 and how it shifted yoy compared to the year-ago period (9M-FY24).

Pressure on Current Account	9M-FY25 Break-up	9M -FY24 Break-up	Boost to Current Account	9M -FY25 Break-up	9M -FY24 Break-up
Trade Deficit	($227.20 bn)	($192.90 bn)	Services Surplus	+$135.50 bn	+$120.10 bn
Primary A/C – Interest	($37.30 bn)	($34.90 bn)	Secondary Income	+$92.00 bn	+$77.10 bn
Negative Thrust on CA	(-$264.50 bn)	(-$227.80 bn)	Positive Thrust on CA	+$227.50 bn	+$197.20 bn
		Current Account Surplus / (Deficit)		($37.00 bn)	(-$30.60 bn)

Data Source: RBI

The picture of current account deficit in 9MFY25 is about 20% higher than what it was in the year-ago period. There has been some respite in the form of services surplus and inward remittances, but the POL deficit has been contributing to the widening of the merchandise trade deficit. That is largely because the oil price gains of using Russian oil are now waning.

WILL THE CAD IN FY25 BE HIGHER THAN IN FY24?

As of now, it looks very likely that the current account deficit for FY25 will be wider than the 1.1% fiscal deficit we witnessed in FY24. Remember, India had reported a current account surplus in Q4FY24. That looks unlikely in Q4FY25. However, based on the current level of $37 Billion for the CAD for the first 9 months; the full year CAD should be around $50 Billion. So, the CAD ratio could be 1.4% to 1.5% of GDP in a worst case scenario. That is higher, but surely not worrisome in a volatile global scenario!