India’s Current Account Deficit Widens to $4.2 Billion in Q1

India’s CAD (Current Account Deficit) reached $4.2 billion or 0.5% of its GDP in the first quarter of fiscal year 2026-27 (FY27), based on the official figures published by the Reserve Bank of India (RBI) on September 1, 2026. The figure represents an expansion of CAD when compared with that of the same period last fiscal year – $3.4 billion or 0.4% of GDP. The major contributing factor to the widening CAD was a larger merchandise trade deficit, although services receipts, remittances from abroad and foreign direct investment helped the accounts.

Current Account Deficit Numbers

According to the latest figures from the RBI, India’s external position is a mixed bag.

First, there is the sharp rise in the merchandise trade deficit to $86.1 billion during April-June 2026 from $68.9 billion during the corresponding quarter of FY26. This rise in the difference between merchandise imports and exports resulted in a widening of the current account deficit.

However, the overall CAD remains moderate at 0.5% of GDP.

How Services Exports Help

While services exports have been supporting the current account balance, India’s services exports have continued to act as support to its merchandise trade deficit. Net services exports grew to $51.6 billion in Q1 FY27, higher than $47.9 billion a year ago.

As per the RBI, services exports grew year-on-year for all major categories including computer services, other business services and transport services.

It is a fact that the services exports of India continue to be a significant contributor to the country’s foreign exchange resources and offset its merchandise trade deficit to some extent.

A Significant Increase in Remittances

The third positive development came in the form of personal transfers, which are basically remittances by Indians living abroad.

Personal transfer receipts rose to $42.9 billion in Q1 FY27, higher than $33.2 billion in the same quarter a year ago.

This has helped in improving India’s external position through receipt of additional foreign exchange.

FDI Inflows Have Improved Too

FDI inflows made for yet another positive development in the country. For the quarter one of FY27, India had net FDI inflows worth $6.1 billion, up from $5.2 billion in the year-ago period.

The increase in FDI inflows shows that there is sustained foreign interest in the economy of India.

What is Current Account Deficit?

The Current Account Deficit (CAD) is a key economic indicator that shows whether a country is spending more on foreign goods, services, income, and transfers than it earns from them. It is part of the Balance of Payments (BoP) which records all transactions between residents of a country and the rest of the world.

When total imports exceed the total exports along with the other major income outflows, the result showcases a deficit in the current account of the country.

A moderate CAD is manageable for the growing economy, but persistent deficits can strain foreign exchange reserves and affect currency stability.