India's current account deficit widens to $4.2 bn in Q1 as trade gap grows

Balance of payments recorded a deficit of $8.1 billion in Q1FY27 as portfolio outflows weighed, compared with a surplus of $4.5 billion in the year-ago quarter

India’s current-account deficit (CAD) widened to $4.2 billion, or 0.5 per cent of gross domestic product (GDP), in the April-June quarter of 2026-27, from a revised $3.4 billion, or 0.4 per cent of GDP, a year ago, according to the data released by the Reserve Bank of India (RBI) on Tuesday.

 

It widened due primarily to a higher merchandise-trade deficit, which rose to $86.1 billion in Q1FY27 from $68.9 billion in the same quarter a year ago.

 

The increase was partly offset by higher net services receipts, which rose to an estimated $51.6 billion from $47.9 billion a year ago, led by computer services, business services and transportation.

 

 

The capital account recorded a net outflow of $3.9 billion in Q1FY27 as against an inflow of $7.9 billion in the year-ago quarter, mainly due to outflows of portfolio investment.

 

Portfolios recorded an outflow of $9.6 billion as against an inflow of $1.6 billion a year ago.

 

Foreign direct investment (FDI), however, rose to $6.1 billion from $5.2 billion. Banking capital, including deposits of non-resident Indians (NRIs), and short-term credit provided inflows, while external commercial borrowing fell to $1 billion from $5.5 billion.

 

With the capital-account outflow exceeding the CAD, the overall balance of payments recorded a deficit of $8.1 billion in Q1FY27, compared with a surplus of $4.5 billion in the year-ago quarter.

 

Foreign-exchange reserves recorded a valuation loss of $14.4 billion during the quarter compared with a valuation gain of $25.3 billion a year ago, due to changes in gold prices and the appreciation of the dollar against major currencies.

 

In nominal terms, India’s foreign-exchange reserves fell by $22.5 billion during April-June, compared with an accretion of $29.8 billion in the same quarter a year ago.

 

“The CAD widened owing to the surge in commodity prices. With this, it was contained at a comfortable 0.5 per cent of GDP in the quarter as against 0.4 per cent in Q1 FY2026, in spite of the ongoing challenges posed by the crisis in West Asia. Nevertheless, the country witnessed capital outflows for the third consecutive quarter in Q1, led by sustained outflows in foreign portfolio investment, which led to a drawdown of reserves to the tune of $8.1 billion, despite the low CAD print,” said Aditi Nayar, chief economist, Icra.

 

Nayar said that Icra expected the CAD to widen in Q2 and Q3 from the Q1 level, taking the full-year CAD to around 0.9 per cent of GDP, compared with 0.7 per cent in FY26.