India’s Current Account Deficit Widens To $4.2 Bn In Q1 Amid West Asia Conflict

India’s current account deficit (CAD) widened to $4.2 billion, or 0.5% of GDP, in the first quarter of FY27, as a sharp rise in the merchandise trade deficit put pressure on the country’s external balance, according to data from the Reserve Bank of India (RBI).

A year earlier, the CAD was $3.4 billion, or 0.4% of GDP.

The latest Balance of Payments data released by the central bank showed that the merchandise trade deficit increased to $86.1 billion during April-June 2026, compared with $68.9 billion in the corresponding quarter of FY26.

The increase came amid heightened pressure on trade linked to the West Asia conflict, as per RBI.

Services And Remittances Provide Support

The widening trade gap was partly offset by stronger earnings from services and overseas remittances. Net services receipts rose to $51.6 billion in Q1 FY27 from $47.9 billion in the same period last year.

"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, as per PTI.

The central bank also reported a decline in net outgo under the primary income account, which largely reflects investment income payments. The outgo fell to $10.5 billion from $13.3 billion a year earlier.

Meanwhile, personal transfer receipts, primarily remittances from Indians working overseas, increased significantly to $42.9 billion in Q1 FY27 from $33.2 billion in Q1 FY26, the RBI data showed.

FPI Outflows Put Pressure On External Account

On the financial account, net FDI inflows increased to $6.1 billion from $5.2 billion a year earlier. However, this was accompanied by a sharp reversal in portfolio investment flows.

Foreign portfolio investors recorded a net outflow of $9.6 billion in Q1 FY27, compared with a net inflow of $1.6 billion in the year-ago quarter, according to RBI data.

Net inflows through NRI deposits also moderated to $2.8 billion from $3.6 billion. The RBI further said net inflows under external commercial borrowings were lower than in the corresponding quarter of FY26.

The country’s foreign exchange reserves declined by $8.1 billion on a Balance of Payments basis during the quarter, compared with an accretion of $4.5 billion a year earlier, the central bank said.