India's current account deficit at 0.5% of GDP in Q1 2026-27, RBI data shows
Synopsis
India kept its current account deficit contained at 0.5% of GDP in Q1 2026-27 despite a ballooning merchandise trade gap of $86.1 billion driven by the West Asia crisis. The real story is the $42.9 billion remittance surge — up sharply from $33.2 billion — that helped hold the line, even as FPI recorded a $9.6 billion net outflow and forex reserves bled $8.1 billion.
Key Takeaways
India's current account deficit (CAD) was $4.2 billion or 0.5% of GDP in Q1 2026-27 , per RBI data released on 1 September .
The merchandise trade deficit widened to $86.1 billion from $68.9 billion in Q1 2025-26, driven by higher import costs linked to the West Asia crisis .
Remittances from Indians abroad jumped to $42.9 billion from $33.2 billion a year earlier, providing a key buffer.
FPI recorded a net outflow of $9.6 billion , reversing a net inflow of $1.6 billion in Q1 2025-26.
Forex reserves fell by $8.1 billion on a balance of payments basis, compared with an accretion of $4.5 billion in the year-ago quarter.
FDI net inflows rose to $6.1 billion from $5.2 billion , the lone bright spot in the capital account.
India's current account deficit (CAD) stood at $4.2 billion in the April-June quarter (Q1) of 2026-27, holding steady at 0.5 per cent of GDP, according to data released by the Reserve Bank of India (RBI) on Tuesday, 1 September. The figure remained broadly stable despite rising global prices of oil, LPG, and fertilisers driven by the West Asia crisis.
Merchandise Trade and Services
The merchandise trade deficit widened sharply to $86.1 billion in Q1 2026-27, up from $68.9 billion in the same quarter of the previous financial year, reflecting the higher cost of imports. This expansion in the goods trade gap was a primary pressure point on the current account.
Partially offsetting the import surge, net services receipts rose to $51.6 billion from $47.9 billion in Q1 of 2025-26. According to the RBI statement, the improvement was driven by year-on-year growth in computer services, other business services, and transportation services — sectors that continue to anchor India's external resilience.
Remittances and Investment Income
Personal transfer receipts — primarily remittances from Indians employed overseas — surged to $42.9 billion in Q1 2026-27, a significant jump from $33.2 billion in the year-ago period. This robust inflow helped cushion the current account against the wider trade gap.
The net outgo on the primary income account, which largely reflects payments of investment income abroad, declined to $10.5 billion from $13.3 billion in Q1 2025-26 — a favourable shift that eased pressure on the overall deficit.
Capital Flows: FDI Up, FPI Records Net Outflow
Foreign direct investment (FDI) recorded a net inflow of $6.1 billion in Q1 2026-27, up from $5.2 billion in the corresponding period last year, signalling continued confidence among long-term investors. However, foreign portfolio investment (FPI) in stock markets recorded a net outflow of $9.6 billion — a sharp reversal from a net inflow of $1.6 billion in Q1 2025-26, reflecting global risk-off sentiment.
Non-resident Indian (NRI) deposits posted a net inflow of $2.8 billion, down from $3.6 billion a year earlier. External commercial borrowings (ECBs) brought in a net $3.3 billion, compared with $4.4 billion in Q1 2025-26.
Foreign Exchange Reserves
India's foreign exchange reserves depleted by $8.1 billion on a balance of payments basis during the quarter, a notable contrast to an accretion of $4.5 billion in Q1 2025-26. The drawdown reflects the combined effect of the wider trade deficit, FPI outflows, and reduced ECB and NRI deposit inflows.
With the West Asia crisis continuing to exert upward pressure on commodity prices, the trajectory of India's CAD in Q2 2026-27 will depend critically on how import costs evolve and whether services exports and remittances maintain their current momentum.
Point of View
The capital account will struggle to finance even a contained current account gap, putting renewed pressure on the rupee and the RBI's reserve buffer — which already shed $8.1 billion this quarter.
NationPress
1 Sept 2026
Frequently Asked Questions
What is India's current account deficit for Q1 2026-27?
India's current account deficit (CAD) stood at $4.2 billion, or 0.5% of GDP, in the April-June quarter of 2026-27, according to RBI data released on 1 September. This is marginally higher than the 0.4% of GDP recorded in the same quarter of the previous financial year.
Why did India's merchandise trade deficit widen in Q1 2026-27?
The merchandise trade deficit expanded to $86.1 billion in Q1 2026-27 from $68.9 billion in Q1 2025-26, primarily due to higher import costs for oil, LPG, and fertilisers driven by the ongoing West Asia crisis. Rising global commodity prices increased India's import bill significantly.
How did remittances perform in Q1 2026-27?
Personal transfer receipts — mainly remittances from Indians working abroad — rose sharply to $42.9 billion in Q1 2026-27 from $33.2 billion in the same period of 2025-26. This surge was a key factor in keeping the current account deficit contained despite the wider trade gap.
What happened to foreign portfolio investment (FPI) in Q1 2026-27?
FPI in Indian stock markets recorded a net outflow of $9.6 billion in Q1 2026-27, a sharp reversal from a net inflow of $1.6 billion in Q1 2025-26. The outflow reflects broader global risk-off sentiment and added pressure to India's capital account.
How did India's foreign exchange reserves change in Q1 2026-27?
India's foreign exchange reserves declined by $8.1 billion on a balance of payments basis in Q1 2026-27, compared with an accretion of $4.5 billion in the same quarter of the previous year. The drawdown was driven by the wider trade deficit, FPI outflows, and lower ECB and NRI deposit inflows.
