India’s current account deficit widens to $4.2 bn in Q1 as trade gap rises

India’s current account deficit (CAD) widened to $4.2 billion, or 0.5% of GDP, in the first quarter of 2026-27, from $3.4 billion, or 0.4% of GDP in the corresponding quarter a year ago, according to data released by the Reserve Bank of India (RBI).

The modest widening in the CAD came primarily on the back of a sharper merchandise trade deficit. The merchandise trade gap increased to $86.1 billion in Q1 2026-27, compared with $68.9 billion in Q1 2025-26, reflecting the continued pressure from India’s import bill, the central bank said.

However, the impact of the wider trade deficit was partly offset by stronger earnings from services and higher remittance receipts. Net services receipts rose to $51.6 billion during the quarter from $47.9 billion a year earlier.

Services exports increased year-on-year across major segments, including computer services, other business services and transportation services, the RBI said. The primary income account also provided some relief. Net outgo on the account, which largely reflects investment income payments, declined to $10.5 billion in Q1 2026-27 from $13.3 billion in the year-ago quarter, it said.

Meanwhile, personal transfer receipts — mainly remittances sent by Indians employed overseas — rose sharply to $42.9 billion from $33.2 billion. The increase in remittances continues to provide an important cushion to India’s external balance, helping offset part of the merchandise trade deficit.

On the financing side, foreign direct investment remained positive, with net FDI inflows rising to $6.1 billion in Q1 2026-27 from $5.2 billion in the same quarter last year. This points to continued investor interest in India’s long-term growth prospects.

Portfolio flows, however, turned significantly weaker. Foreign portfolio investment recorded a net outflow of $9.6 billion during the quarter, compared with a net inflow of $1.6 billion in Q1 2025-26. The reversal highlights the greater volatility of portfolio capital compared with longer-term investment flows.

Non-resident deposits also recorded a net inflow, though these moderated to $2.8 billion from $3.6 billion a year earlier. Net inflows through external commercial borrowings stood at $3.3 billion, against $4.4 billion in Q1 2025-26, RBI says.

The changing composition of external flows was also reflected in India’s foreign exchange reserves. On a balance-of-payments basis, reserves declined by $8.1 billion in Q1 2026-27, compared with an accretion of $4.5 billion in the corresponding period last year.

Overall, the latest data suggest that while India’s external position remains relatively contained in relation to the size of the economy, the widening merchandise trade deficit and reversal in portfolio flows warrant close monitoring.

Strong services exports, remittances and FDI inflows continue to act as key buffers against external pressures, it says. George Mathew is an Associate Editor with The Indian Express, based in Mumbai. A veteran of financial journalism with nearly three decades of experience, he is one of the country’s most authoritative voices on banking, regulation, and the corporate sector.

Expertise & Focus Areas Mathew’s reporting covers the nerve center of India’s economy. His specialized beats include: The Reserve Bank of India (RBI): He has tracked the central bank's policy evolution through the tenures of multiple Governors, offering deep insights into monetary policy, repo rates, and banking regulation.

Banking & Insurance: Extensive coverage of public and private sector banks, non-performing assets (NPAs), and key legislative reforms like the Insurance Amendment Bills. Corporate Affairs: Mathew frequently breaks major stories related to India's largest conglomerates, with a specific focus on the Tata Group, documenting boardroom shifts and strategic decisions.

Financial Markets: Reporting on the complexities of Foreign Portfolio Investors (FPIs), IPOs, and currency fluctuations. Authoritativeness & Insight With a career dating back to the late 1990s, Mathew possesses a rare institutional memory of India’s financial liberalization and market crises.

His work is not limited to daily news; he frequently contributes to the "Explained" section, where he decodes complex financial legislations and market trends for a broader audience. His rigorous reporting has also been featured in scholarly platforms like the Economic and Political Weekly (EPW).

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