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In absolute terms, the CAD was at $2.4 billion against $8.6 billion in the year-ago quarter.
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India’s current account deficit (CAD) slipped in the first quarter (Q1FY26) from a surplus recorded in the preceding quarter (Q4FY25). However, it narrowed in the reporting quarter as against the year-ago quarter.
CAD is a measure of a country’s trade where the value of goods and services it imports exceeds the value of the products it exports.
The current account balance in Q1 FY26 recorded a deficit of 0.2 per cent of GDP as against a surplus of 1.3 per cent of the GDP in Q4 of FY25.
FPIs inflows, ECBs drag CAD
CAD narrowed in the reporting quarter, against 0.9 per cent in the year ago period, primarily due to a rise in net services receipts, remittances, and inflows on account of foreign portfolio investment (FPI) and external commercial borrowings (ECBs).
In absolute terms, the CAD was at $2.4 billion against $8.6 billion in the year-ago quarter. The country had recorded a current account surplus of $13.5 billion in Q4 FY25.
Aditi Nayar, Chief Economist, ICRA, said, “While India’s current account expectedly reverted to a deficit in Q1 FY26, the extent of the same was considerably lower than our projection ($7 billion) – at just $2.4 billion or 0.2 per cent of GDP. “
Remittances
Nayar noted that the surprise was largely driven by larger-than-anticipated remittances, which surged by 18 per cent on a y-o-y basis in the quarter.
“This augurs well, given the uncertainty that lies ahead given the recent tariff-related developments. Considering that 50-60 per cent of India’s exports to the US (total merchandise exports to the US in FY25: $87 billion) are at risk, the downside is likely to be material in case the 50 per cent tariff rate is continued until the end of FY26,” Nayar said.
Given this, India’s exports to the US are likely to contract during the remainder of the fiscal. ICRA expects India’s overall merchandise exports to decline somewhat in FY26 from the levels seen in FY25, and for the current account deficit to exceed 1 per cent of GDP, while remaining at moderate levels.
Merchandise trade deficit in the reporting quarter rose to $68.5 billion as against $56.7 billion in the year-ago quarter.
Net services receipts increased to $47.9 billion in Q1FY26 from $39.7 billion a year ago. Services exports have risen on a y-o-y basis across major categories such as business services and computer services, RBI said in a statement.
Personal transfer receipts, mainly representing remittances by Indians employed overseas, rose to $33.2 billion in Q1 FY26 from $28.6 billion in Q1FY25.
Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $12.8 billion in Q1 FY26 from $10.9 billion in Q1 FY25.
Net foreign direct investment (FDI) inflows recorded a lower inflow at $5.7 billion in Q1 FY26 against $6.2 billion in the year-ago period. Net inflows under FPI were higher at $1.6 billion against $0.9 billion.
NRI deposits
Net inflows under ECBs to India amounted to $3.7 billion in Q1 FY26, higher than $1.6 billion in the corresponding period a year ago. Non-resident deposits (NRI deposits) recorded lower inflows of $3.6 billion against $4.0 billion a year ago.
There was an accretion of $4.5 billion to the foreign exchange reserves (on a balance of payments basis) in Q1 FY26 as compared with $5.2 billion in Q1FY25.
Published on September 1, 2025
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