India’s current account deficit (CAD) narrowed sharply to 0.2 per cent of GDP, or $2.4 billion, in the April–June quarter of FY26, compared with 0.9 per cent of GDP ($8.6 billion) in the same period last year, according to RBI data released on Monday.
The improvement was driven by strong growth in services exports and remittance inflows, though the merchandise trade deficit remained elevated.
Merchandise trade deficit widened to $68.5 billion in Q1 FY26 from $63.8 billion a year earlier. However, this was offset by robust performance in services, with net services receipts rising to $47.9 billion from $39.7 billion, led by growth in business and computer services.
Personal transfer receipts, mainly remittances from overseas Indians, also provided support, climbing to $33.2 billion from $28.6 billion in the year-ago period.
On the financial account, FDI inflows moderated to $5.7 billion from $6.2 billion, while FPI inflows strengthened to $1.6 billion versus $0.9 billion. External commercial borrowings saw net inflows of $3.7 billion, more than double last year’s $1.6 billion. Meanwhile, NRI deposits registered lower inflows of $3.6 billion compared with $4 billion.
The primary income outgo, largely investment income payments, increased to $12.8 billion from $10.9 billion, weighing on the overall balance.
“There was an accretion of $4.5 billion to the foreign exchange reserves in Q1FY26 compared with an accretion of $5.2 billion in Q1FY25,” the RBI said.
The data comes against the backdrop of a buoyant domestic economy. India’s GDP expanded 7.8 per cent year-on-year in Q1FY26, beating expectations of 6.7 per cent.
Adding to the optimism, the HSBC India Manufacturing Purchasing Managers’ Index, compiled by S&P Global, rose to 59.3 in August — the highest since February 2008 —from 59.1 in July.