MUMBAI: The country’s current account recorded a deficit of $2.4 billion (0.2% of GDP) in April-June 2025, narrower than the $8.6 billion shortfall a year earlier but a sharp reversal from the $13.5 billion surplus in the previous quarter. The merchandise trade gap widened to $68.5 billion in Q1 from $63.8 billion last year, though this was partly offset by buoyant services exports, which rose to $47.9 billion from $39.7 billion, led by IT and business services. Remittances added further support, climbing to $33.2 billion from $28.6 billion.On the financial account, FDI inflows slowed to $5.7 billion from $6.2 billion, while portfolio flows strengthened to $1.6 billion from $0.9 billion. External borrowings increased to $3.7 billion, against $1.6 billion a year earlier, but NRI deposits softened to $3.6 billion from $4 billion. Overall, the balance of payments showed a surplus of $4.5 billion, compared with $5.2 billion in the same quarter last year.Risks, however, are mounting. Higher tariffs threaten labour-intensive exports, and the current account deficit could widen to 1.2-1.3% of GDP in FY26. The central bank’s reduced forward book may weigh on the capital account, adding pressure on the rupee, which analysts expect to trade in a band of 87.50-89 per dollar in the near term.“Merchandise trade deficit rose to an eight-month high of $27.4 billion in July (vs $18.8 billion in June) due to a sharper sequential rise in imports than exports. Front-loaded exports to the US have led to the core exports trend being healthy for April-July FY26, although this is now at risk after 50% tariffs,” said Madhavi Arora, lead economist, Emkay Global.