The Current Account Deficit (CAD) is an economic concept that represents a country's net financial position with the rest of the world over a specific period. It is one of the two main components of the Balance of Payments (BoP), recording all transactions involving the flow of goods, services, income, and transfers. A deficit occurs when the total value of money flowing out (payments for imports and transfers) exceeds the total value of money flowing in (receipts from exports and transfers).
The CAD is calculated by the Reserve Bank of India (RBI) quarterly. The core mechanism sums four components: the Trade Balance (exports minus imports of goods), the Services Balance (exports minus imports of services), Net Primary Income (interest, dividends, and profits), and Net Secondary Income (unilateral transfers like remittances from Non-Resident Indians). A negative sum indicates a deficit.
The CAD is historically significant in India, as a high deficit was a primary cause of the 1991 Indian economic crisis. The CAD/GDP ratio reached a peak of 3.1% of GDP in 1990-91, which, combined with a high Fiscal Deficit, led to a near-depletion of Foreign Exchange Reserves and forced the government to initiate liberalisation reforms.
An informed reader should know that a persistent, high CAD can lead to Rupee Depreciation and strain the country's external finances. The RBI generally considers a CAD within 2.5% of GDP to be manageable for currency stability. Recently, India's CAD has moderated, standing at 0.6% of GDP for the full year FY2024–25. However, it widened to $13.2 billion or 1.3% of GDP in the October–December quarter of 2025-26 (Q3 FY26), driven mainly by a higher merchandise trade deficit.