India's current account deficit (CAD) widened to $4.2 billion, or 0.5% of GDP, in the first quarter of 2026-27, compared with a revised $3.4 billion, or 0.4% of GDP, in the same quarter a year ago, the Reserve Bank of India (RBI) said on Tuesday.
The widening was primarily driven by a higher merchandise trade gap, which increased to $86.1 billion in Q1 2026-27 from $68.9 billion in the corresponding quarter of the previous year, according to the RBI's preliminary data.
However, stronger services earnings and higher remittance receipts provided some cushion. Net services receipts rose to $51.6 billion during the quarter from $47.9 billion a year earlier, with services exports recording year-on-year growth across major segments, including computer services, other business services and transportation services, the central bank said.
Personal transfer receipts — mainly remittances by Indians employed overseas — rose sharply to $42.9 billion from $33.2 billion a year earlier. The increase in remittances continues to provide an important cushion to India's external balance, helping offset part of the merchandise trade deficit.
The net outgo under the primary income 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, the RBI said.
On the financing side, net foreign direct investment (FDI) inflows rose to $6.1 billion in Q1 2026-27 from $5.2 billion in the same quarter last year, pointing 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.
Net inflows into non-resident deposits 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, according to the RBI.
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 of the current account deficit and the shifts in capital flows bear watching.