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India’s Current Account Deficit Widens to $4.2 Billion in Q1 FY27
Author
Shoonya Team
India’s current account deficit widened in the April-June quarter of FY27, according to preliminary balance of payments data released by the Reserve Bank of India. The gap increased as a larger merchandise trade deficit outweighed stronger services earnings and higher inward transfers.
The current account deficit stood at $4.2 billion, or 0.5% of GDP, in Q1 FY27, compared with $3.4 billion, or 0.4% of GDP, a year earlier.
Q1 FY27 Balance of Payments: Key Numbers
| Indicator | Q1 FY27 | Q1 FY26 |
|---|---|---|
| Current Account Deficit | $4.2 billion (0.5% of GDP) | $3.4 billion (0.4% of GDP) |
| Merchandise Trade Deficit | $86.1 billion | $68.9 billion |
| Merchandise Exports | $132 billion | $112.7 billion |
| Merchandise Imports | $218 billion | $181.6 billion |
| POL Deficit | $37.6 billion | $32.2 billion |
| Net Services Receipts | $51.6 billion | $47.9 billion |
| Net Secondary Income | $40.8 billion | $30.9 billion |
Why Did the Current Account Deficit Widen in Q1 FY27?
The goods trade account remained the main pressure point. The merchandise trade gap rose by $17.2 billion year-on-year, as imports climbed to $218 billion from $181.6 billion while exports grew to $132 billion from $112.7 billion.
Within the goods account, the petroleum, oil, and lubricants deficit widened to $37.6 billion from $32.2 billion in the same quarter last year.
How Services and Remittances Provided a Cushion
Two offsetting flows limited the overall deterioration:
- Net services receipts rose to $51.6 billion from $47.9 billion, as services exports grew to $106.2 billion from $97.4 billion. Services imports also increased to $54.6 billion from $49.5 billion
- Net secondary income, largely reflecting remittances, jumped to $40.8 billion from $30.9 billion a year earlier
The primary income account also moved favourably. Net outgo under this head declined to $10.5 billion from $13.3 billion, mainly due to lower investment income payments.
How Capital Flows Moved in Q1 FY27
The financial account showed a split across investment categories:
| Financial Account Item | Q1 FY27 | Q1 FY26 |
|---|---|---|
| Net FDI Inflow | $6.1 billion | $5.2 billion |
| Net FPI Flow | Outflow of $9.6 billion | Inflow of $1.6 billion |
| Non-Resident Deposit Inflow | $2.8 billion | $3.6 billion |
| Net External Commercial Borrowings | $3.3 billion | $4.4 billion |
Foreign direct investment recorded a net inflow of $6.1 billion, higher than $5.2 billion in the same quarter last year. Foreign portfolio investment moved the other way, posting a $9.6 billion net outflow against a $1.6 billion inflow in Q1 FY26.
What Happened to Foreign Exchange Reserves
India’s foreign exchange reserves declined by $8.1 billion on a balance-of-payments basis, excluding valuation effects, during Q1 FY27. In the year-ago period, reserves had risen by $4.5 billion on the same basis.
Including valuation effects, reserves fell by $22.5 billion during April-June 2026, compared with an accretion of $29.8 billion a year earlier. The RBI said the quarter saw a valuation loss of $14.4 billion, primarily due to lower gold prices and appreciation of the US dollar against major currencies.
Final Outlook
India’s current account deficit widened modestly as the goods trade gap expanded, even as services receipts, remittances and lower primary income outgo provided support. The data showed that external pressures came more from merchandise trade and portfolio outflows than from services.
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