India's current account deficit widened to $4.2 billion in Q1 FY27, RBI reports
What happened
The Reserve Bank of India reported that India’s current account deficit expanded to $4.2 billion, or 0.5% of GDP, in Q1 FY27 (April–June 2026), compared to $3.4 billion (0.4% of GDP) a year earlier. The expansion was driven by a merchandise trade deficit of $86.1 billion, up from $68.9 billion. The larger trade gap was partially offset by net services receipts rising to $51.6 billion and personal remittances increasing to $42.9 billion.
Why it matters
A larger trade gap combined with capital outflows put fresh pressure on external accounts. Net foreign portfolio investment swung to an outflow of $9.6 billion from an inflow of $1.6 billion in Q1 FY26, offsetting a modest rise in net foreign direct investment to $6.1 billion. Together with $14.4 billion in valuation losses from currency and gold price movements, total foreign exchange reserves decreased by $22.5 billion in nominal terms.
Bigger picture
India’s balance-of-payments data highlights a structural tug-of-war in its external sector. Strong invisible earnings—led by resilient software and business service exports alongside worker remittances—continue to cushion expanding physical trade deficits. However, reliance on volatile short-term portfolio capital and exposure to global valuation shifts leave total reserves vulnerable during periods of broader market turbulence.
Watch next
Monitor foreign portfolio investment flows and global trade conditions in upcoming quarters to see whether service exports and worker remittances can keep offsetting trade deficits and reserve drawdowns.