India Q1FY26 CAD Stands at $2.4 Billion vs $8.6 Billion Last Year

India’s external position showed improvement in the opening quarter of FY26, as the current account deficit (CAD) eased sharply to $2.4 billion, equivalent to 0.2% of GDP. This marks a significant reduction from the $8.6 billion deficit, or 0.9% of GDP, recorded a year earlier. The Reserve Bank of India reported that the balance had even stood at a surplus of $13.5 billion, or 1.3% of GDP, in the preceding quarter of FY25.

Trade And Services Performance

The country’s merchandise trade gap widened year-on-year, with the deficit rising to $68.5 billion in Q1FY26 compared with $63.8 billion in the same period of FY25. However, robust growth in services exports provided a buffer. Net services receipts climbed to $47.9 billion, up from $39.7 billion a year earlier, driven by stronger inflows in categories including business and computer services.

Income Flows And Remittances

Outflows on the primary income account, largely reflecting investment income payments, increased to $12.8 billion from $10.9 billion a year earlier. On the other hand, remittances provided much-needed support to the external balance. Personal transfer receipts, mainly remittances by Indians working overseas, rose to $33.2 billion in Q1FY26 compared with $28.6 billion in Q1FY25, highlighting resilience in household inflows.

Capital Account Developments

Foreign direct investment registered a net inflow of $5.7 billion, lower than the $6.2 billion seen in the year-ago period. Meanwhile, foreign portfolio investment strengthened, posting a net inflow of $1.6 billion in Q1FY26 against $0.9 billion a year earlier. Together, these flows contributed to the financial account position during the quarter.

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Conclusion

India’s external sector in Q1FY26 reflects a narrowing current account deficit supported by higher services receipts and remittance inflows, even as trade and income outgo pressures persisted. With FDI steady and FPI picking up, the data highlights a balanced start to the financial year, though trade dynamics remain a key watchpoint ahead.

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