India’s Q1FY26 Current Account Deficit Narrows Sharply to $2.4 Billion

India’s external sector began FY26 on a positive note, as the country’s current account deficit (CAD) narrowed considerably in the first quarter. According to data released by the Reserve Bank of India (RBI), CAD stood at $2.4 billion in Q1FY26, equivalent to 0.2% of GDP. This marks a steep decline from the $8.6 billion deficit, or 0.9% of GDP, reported in the same quarter last year.

The balance also showed moderation compared with the preceding quarter, when India recorded a surplus of $13.5 billion, or 1.3% of GDP, in Q4FY25.

Trade and Services Performance

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India’s merchandise trade deficit expanded on an annual basis. The gap widened to $68.5 billion in Q1FY26 from $63.8 billion in Q1FY25, reflecting higher imports relative to exports. Despite this pressure, robust services exports helped cushion the impact.

Net services receipts rose to $47.9 billion, compared with $39.7 billion a year earlier. Growth was supported by strong inflows in key segments, including business and computer services, which remain core strengths of India’s external sector.

Income Flows and Remittances

Outflows on the primary income account increased, driven largely by higher payments on investment income. These rose to $12.8 billion in Q1FY26 from $10.9 billion a year earlier, weighing on the overall current account balance.

At the same time, remittances continued to provide a strong buffer. Personal transfer receipts, largely comprising remittances from Indians working abroad, climbed to $33.2 billion in Q1FY26. This was higher than the $28.6 billion recorded in the same quarter last year, underscoring the resilience of household inflows.

Capital Account Developments

Foreign investment flows offered further support to the external balance. Net foreign direct investment (FDI) inflows were steady at $5.7 billion in Q1FY26, only marginally below the $6.2 billion seen in the year-ago period. Foreign portfolio investment (FPI), however, showed improvement, with net inflows of $1.6 billion against $0.9 billion a year earlier. These flows contributed positively to India’s financial account position.

Conclusion

India’s Q1FY26 external sector data reflects a stable start to the financial year, with the current account deficit easing sharply despite a wider merchandise trade gap and rising income outflows. Stronger services exports, resilient remittances, and steady capital inflows helped offset pressures, highlighting the underlying strength of India’s external position. Going forward, trade trends will remain a critical factor in determining the trajectory of the current account.