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The country’s current account balance recorded a deficit of $2.4 billion, or 0.2 per cent of gross domestic product (GDP), in April-June 2025 quarter, compared to $8.6 billion, or 0.9 per cent, in the year-ago period, the Reserve Bank of India (RBI) data showed.
The January-March 2025 quarter saw a current account surplus of $13.5 billion, or 1.3 per cent of GDP.
The current account deficit is the difference between exports and imports of goods and services. It is a key indicator of the country’s external sector.
“While India’s current account expectedly reverted to a deficit in Q1 FY2026, the extent of the same was considerably lower than our projection (~$7 billion), at just $2.4 billion or 0.2 per cent of GDP. The surprise was largely driven by larger than anticipated remittances, which surged by around 18 per cent on a YoY basis in the quarter. This augurs well, given the uncertainty that lies ahead given the recent tariff-related developments,” said Aditi Nayar, Chief Economist, ICRA Ltd.
In Q1 FY26, the merchandise trade deficit was at $68.5 billion, higher than $63.8 billion in the corresponding quarter of the previous fiscal. Personal transfer receipts, mainly representing remittances by Indians employed overseas, rose to $33.2 billion from $28.6 billion in Q1 FY25.
Nayar said that considering that nearly 50-60 per cent of the country’s exports to the US (total merchandise exports to the US in FY2025- $87 billion) are at risk, the downside is likely to be material in case the 50 per cent tariff rate is continued until the end of FY2026.
Given this, the country’s exports to the US are likely to contract during the remainder of the fiscal.
“In this scenario, we expect India’s overall merchandise exports to decline somewhat in FY2026 from the levels seen in FY2025, and for the current account deficit to exceed one per cent of GDP, while remaining at moderate levels,” she said.
Under external commercial borrowings (ECB), net inflows into India amounted to $3.7 billion, compared to $1.6 billion in the corresponding period a year ago.
Non-resident deposits (NRI deposits) recorded a lower net inflow of US 3.6 billion compared to $4 billion.
There was an accretion of $4.5 billion to the foreign exchange reserves (on a balance of payment basis) in Q1 FY2026 as compared to an accretion of $5.2 billion last year same period.
