CAD widens slightly to 0.5% in Q1, reserves shrink by $8.1-bn

India’s current account deficit widened to $4.2 billion in Q1FY27, driven by higher energy prices and trade deficit amid West Asia war, but remains manageable with strong capital inflows and forex reserves.

Written by Shubham Rana

September 1, 2026 21:30 IST

Current account seen comfortable around 1% of GDP in FY27 Shubham Rana New Delhi, September 1 India's current account deficit (CAD) widened marginally in the April-June quarter (Q1FY27) from a year ago due to higher energy prices and a wider goods trade deficit on the back of the war in West Asia, the Reserve Bank of India (RBI) data released on Tuesday showed. The CAD rose to $4.2 billion, or 0.5% of GDP, in the June quarter from $3.4 billion, or 0.4% of GDP, in the year-ago quarter. The current account was in a surplus of $6.5 billion in the January-March 2026 period. A rising import bill driven by higher energy prices is likely to broaden India’s current account deficit in the current quarter, economists said, but no major risk is expected. “CAD can be higher in Q2 because the trade deficit was higher in July. But we don’t see any extreme risk to the full-year CAD number which was expected earlier in the year,” said Sakshi Gupta, principal economist at HDFC Bank. The overall Balance of Payments (BoP) was in an $8.1 billion deficit in April-June against a surplus of $4.5 billion in the year-ago quarter, as capital inflows could not fully cover the CAD. However, large capital inflows through the RBI’s special FCNR window for non-resident Indians and a record-high forex reserves are likely to keep India’s BoP deficit in check in FY27, economists said. A revival in foreign portfolio inflows in the July-September quarter should also support the BoP position. Foreign portfolio investment (FPI) recorded a net outflow of $9.6 billion in the June quarter, compared to a net inflow of $1.6 billion in the year-ago quarter. According to data from the National Securities Depository Limited, India saw net FPI inflows worth $7.7 billion in equity and debt in July-August. Credit rating agency ICRA expects the CAD to widen to around 0.9% of GDP in FY27 from 0.7% in FY26, while remaining “comfortably manageable”. “This would be comfortably financed, aided by the sizeable FCNR(B) inflows, which should lead to an accretion to reserves in FY27 after a gap of two years,” said ICRA’s chief economist Aditi Nayar. In April-June this year, CAD widened as the merchandise trade deficit rose to $86.1 billion from $68.9 billion a year ago. Net services receipts increased to $51.6 billion in the first quarter of FY27 from $47.9 billion a year ago. “Services exports have risen on a year-on-year basis in major categories such as computer services, other business services and transportation services,” the RBI said in a release. Personal transfer receipts, reflecting remittances by Indians, rose to $42.9 billion in Q1FY27 from $33.2 billion a year ago. Net outgo on the primary income account, mainly reflecting payments of investment income, fell to $10.5 billion in the June quarter from $13.3 billion in Q1FY26. In the financial account, foreign direct investment (FDI) recorded a net inflow of $6.1 billion in Q1FY27, higher than $5.2 billion a year ago. Non-resident deposits (NRI deposits) recorded a net inflow of $2.8 billion in April-June compared to $3.6 billion in Q1FY26. Such deposits are likely to rise sharply in September quarter thanks to the RBI’s FCNR(B) scheme, which is expected to have drawn over $80 billion till August 31. Net inflows under external commercial borrowings (ECBs) to India fell to $3.3 billion in Q1FY27 as from $4.4 billion a year ago.

India’s current account deficit (CAD) widened marginally in the April-June quarter (Q1FY27) from a year ago due to higher energy prices and a wider goods trade deficit on the back of the war in West Asia, the Reserve Bank of India (RBI) data released on Tuesday showed.

The CAD rose to $4.2 billion, or 0.5% of GDP, in the June quarter from $3.4 billion, or 0.4% of GDP, in the year-ago quarter. The current account was in a surplus of $6.5 billion in the January-March 2026 period.

A rising import bill driven by higher energy prices is likely to broaden India’s current account deficit in the current quarter, economists said, but no major risk is expected. “CAD can be higher in Q2 because the trade deficit was higher in July. But we don’t see any extreme risk to the full-year CAD number which was expected earlier in the year,” said Sakshi Gupta, principal economist at HDFC Bank.

The overall Balance of Payments (BoP) was in an $8.1 billion deficit in April-June against a surplus of $4.5 billion in the year-ago quarter, as capital inflows could not fully cover the CAD. However, large capital inflows through the RBI’s special FCNR window for non-resident Indians and a record-high forex reserves are likely to keep India’s BoP deficit in check in FY27, economists said.