India’s current account deficit widens to $4.2 bn in Q1 as trade gap grows | Economy & Policy News

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 data released by the Reserve Bank of India (RBI) on Tuesday.

The widening in CAD was primarily due to a higher merchandise trade deficit, which rose to $86.1 billion in Q1FY27 from $68.9 billion in the year-ago quarter. The increase in the trade gap 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, against an inflow of $7.9 billion in the year-ago quarter, mainly due to portfolio investment outflows.

Portfolio flows recorded an outflow of $9.6 billion, compared with 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 non-resident Indian (NRI) deposits, and short-term credit provided inflows, while external commercial borrowings fell to $1 billion from $5.5 billion.

With the capital account outflow exceeding the current account deficit, 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 US dollar against major currencies.

In nominal terms, India’s foreign exchange reserves fell by $22.5 billion during April-June 2026, compared with an accretion of $29.8 billion in the same quarter a year ago.

“India’s current account deficit (CAD) rose slightly to $4.2 billion in Q1 FY2027 from $3.4 billion in the year ago quarter, with the material widening in the merchandise trade deficit owing to the surge in commodity prices being largely offset by the healthy expansion in net invisible earnings. With this, the CAD 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 West Asia crisis.

Nevertheless, the country witnessed capital outflows for the third consecutive quarter in Q1 FY2027, led by sustained FPI outflows, which led to a drawdown of reserves to the tune of $8.1 billion, despite the low CAD print,” said Aditi Nayar, chief economist at ICRA.

Nayar said that ICRA expects the CAD to widen in Q2 and Q3 FY2027 from the Q1 level, taking the full-year CAD to around 0.9 per cent of GDP, compared with 0.7 per cent in FY2026.