India's current account posts surprise surplus in Q4 on remittances boost

Strong services exports and record remittance inflows helped India record a current account surplus of $7.1 billion in the March quarter despite continued capital outflows

India’s current account recorded a surprise surplus of $7.1 billion during the fourth quarter (January–March/Q4) of 2025-26 (FY26), amounting to 0.7 per cent of gross domestic product (GDP), driven by a strong invisible trade surplus and a sequential narrowing in the merchandise trade deficit, according to the latest data released by the Reserve Bank of India (RBI).

 

In the third quarter (October-December/Q3) of 2024-25 (FY25), there was a current account deficit (CAD) of $13.2 billion, or 1.3 per cent of GDP.

 

For the full financial year of FY26, India’s CAD widened to $25.2 billion from $22.9 billion in the previous year, though it remained steady at 0.6 per cent of GDP.

 

 

“Owing to the better-than-expected Q4FY26 numbers, CAD was contained at just 0.6 per cent of GDP in FY26, similar to the level seen in FY25. Nevertheless, it was a challenge to finance even such a low level of CAD amid negligible net capital inflows, leading to a $23.6 billion drawdown in reserve assets during the financial year,” said Rahul Agrawal, senior economist at Icra.

 

In Q4, the merchandise trade deficit stood at $83.4 billion, higher than $59.3 billion during the same period last year. Net services receipts increased to $60.4 billion from $53.3 billion a year ago. “Services exports have risen on a year-on-year basis in major categories such as computer services and other business services,” the RBI said.

 

Importantly, personal transfer receipts under the secondary income account — mainly representing remittances by Indians employed overseas — rose to a record $43.5 billion in Q4FY26 from $33.9 billion in the same period last year. “With the outbreak of conflict in the Middle East, there could have been an increase in transfers from global capability centres as a precautionary measure towards end-Q4,” Barclays said in a report.

 

In the financial account, foreign direct investment (FDI) recorded a net inflow of $4.2 billion during the quarter, higher than $400 million in Q4FY25, the RBI said. Foreign portfolio investment recorded a net outflow of $12 billion, compared with an outflow of $5.9 billion during the same period last year.

 

Non-resident Indian deposits recorded a net inflow of $3.3 billion during the quarter, higher than $2.8 billion a year ago. Net inflows through external commercial borrowings stood at $3.6 billion, down from $7.5 billion.

 

Overall, the balance of payments (BoP) posted a surplus of $7.2 billion in Q4, compared with a deficit of $24.4 billion in Q3. However, on a full-year basis, FY26 recorded a BoP deficit of $23.6 billion, sharply wider than the $5 billion deficit in FY25.

 

Commenting that the capital account deficit weighed on the current account surplus, Barclays said: “The capital account balance posted another deficit, of $1.1 billion, though this is smaller than the Q3 deficit of $7.7 billion.”

 

On a full-year basis, net FDI inflows increased to $6.9 billion in FY26 from $1 billion in FY25. Foreign portfolio investors recorded net outflows of $16.4 billion in FY26, against net inflows of $3.6 billion a year earlier, the RBI said.

 

Icra said it expects CAD to more than double in 2026-27 compared with FY26 levels, owing to the surge in global energy prices following the West Asia conflict. “While the recent measures to attract capital flows by the Government of India and the RBI are expected to provide some respite, these may remain insufficient unless net FDI inflows improve materially from the current levels,” Agrawal added.

 

Barclays, however, said the recent steps taken by the central bank to attract foreign capital flows are likely to ease concerns around BoP deficit.