RBI Reports Sharp Fall in India’s Current Account Deficit in 2025

India’s external sector has shown improvement in 2025. The Reserve Bank of India (RBI) has reported that the current account deficit (CAD) declined significantly during April-December 2025. The Current Account Deficit stood at 30.1 billion dollars. This CAD is 1% of GDP and it is compared to 36.6 billion dollars in the same period last year. The RBI’s latest report on India’s Balance of Payments highlights rising FDI inflows and services export growth and changes in foreign exchange reserves.

Current Account Deficit (CAD) Declines to 1% of GDP in 2025

India’s current account deficit (CAD) moderated to 30.1 billion dollars during April-December 2025.

• It stood at 36.6 billion dollars in the same period of the previous year.
• CAD is now 1% of GDP, indicating improved external stability.
• A lower current account deficit means reduced pressure on foreign borrowing.
• Improvement reflects better performance in trade and services exports.
• The data was released by the Reserve Bank of India (RBI).

The decline in current account deficit signals stronger balance of payments management in 2025.

Net FDI Inflows Rise Sharply in April–December 2025

• Net Foreign Direct Investment (FDI) increased to 3 billion dollars.
• In the same period last year the net FDI was just 0.6 billion dollars.
• The increase shows improved investor confidence in India.
• FDI includes long-term investments in businesses and infrastructure.
• Higher FDI helps finance the current account deficit.
• It strengthens India’s capital account position.

The rise in FDI inflows has supported the narrowing of the current account deficit.

Foreign Portfolio Investment (FPI) Records Net Outflows

Foreign Portfolio Investment (FPI) saw net outflows of 4.3 billion dollars.

• Last year, FPI had recorded net inflows of 9.4 billion dollars.
• FPI includes investments in stocks and bonds.
• Outflows may be linked to global financial uncertainty.
• Portfolio flows are more volatile than FDI.
• Despite FPI outflows, overall external stability remained manageable.

FPI trends show short-term capital movement differences compared to stable FDI inflows.

Foreign Exchange Reserves Deplete in 2025

Foreign exchange reserves declined by 30.8 billion dollars (Balance of Payments basis).

• In the same period last year this reserves declined by 13.8 billion dollars.
• Depletion indicates RBI intervention or capital outflows.
• Forex reserves help stabilize currency and manage external shocks.
• Despite depletion, India maintains adequate reserve levels.
• The change in foreign exchange reserves reflects capital flow movements during the year.

Services Exports Boost India’s Balance of Payments

RBI report highlights growth in services exports.

• Major growth seen in computer services.
• Strong performance in other business services.
• Services exports help offset trade deficits in goods.
• Growth supports narrowing of current account deficit.
• The report is part of RBI’s Balance of Payments update for Q3 2025-26.

Rising services exports remain a key strength of India’s external sector.

What Is Current Account Deficit (CAD)?

• The current account deficit (CAD) occurs when a country’s total imports of goods, services and transfers exceed its exports.
• It reflects the gap between what a country earns from the world and what it spends abroad.
• CAD is expressed as a percentage of GDP to measure economic sustainability.
• A moderate CAD is manageable but a high deficit may lead to currency pressure and external borrowing.
• The Reserve Bank of India regularly monitors CAD as part of India’s Balance of Payments framework.

Question

Q. India’s current account deficit during April–December 2025 stood at,

A) 36.6 billion USD
B) 40 billion USD
C) 30.1 billion USD
D) 25 billion USD