Current account deficit narrows to $5.2 billion in August as trade gap eases

India’s current account deficit (CAD) narrowed to $5.2 billion in August 2026 from $6.1 billion in the year-ago month, supported by a lower merchandise trade deficit and a higher surplus in services trade, according to preliminary data released by the Reserve Bank of India (RBI) on Thursday. 

The merchandise trade deficit declined to $26.6 billion in August from $27.6 billion a year earlier. Merchandise exports rose to $44.7 billion from $35.1 billion while imports increased to $71.3 billion from $62.7 billion, the RBI said in its report on developments in India's balance of payments. 

The surplus in services trade increased to $16.5 billion in August from $15.6 billion a year earlier. Services exports rose to $35.5 billion from $31.2 billion while imports increased to $18.9 billion from $15.6 billion. However, the net deficit in the income account widened to $8 billion from $6.3 billion. Net transfers, including remittances, increased to $12.8 billion from $12.2 billion in the corresponding month last year. 

CAD likely to widen in Q2 FY27 

Aditi Nayar, chief economist at ICRA, said India's merchandise exports expanded by more than 20% for the second consecutive month in September 2026 while import growth moderated to a six-month low of 8%, amid a sharp contraction in gold imports. 

This helped contain the merchandise trade deficit at $30.2 billion in September, lower than the $33 billion recorded in September 2025, although broadly in line with levels seen during the first five months of FY27, she said. 

"Amid a modest expansion in the merchandise trade deficit and an expected easing in invisible earnings, led by tempering remittance inflows, we expect India’s CAD to widen $13-15 billion in Q2 FY2027 from $4.2 billion in Q1 FY2027 while printing marginally lower than the year ago levels," Nayar said. 

CAD widens to $18.3 billion in April-August 

During April-August FY27, India's current account deficit widened to $18.3 billion from $12.8 billion in the corresponding period a year earlier. 

The merchandise trade deficit increased to $146 billion during the five-month period from $124.7 billion in the year-ago period. The surplus in services trade rose to $85.8 billion from $79.9 billion, while net transfers increased to $66.8 billion from $55.6 billion. 

Capital flows lift balance of payments 

Capital flows strengthened in August, with net foreign direct investment (FDI) recording inflows of $3.3 billion, compared with a net outflow of $0.1 billion in August 2025. 

Net foreign portfolio investment (FPI) registered inflows of $1.7 billion, reversing an outflow of $2.6 billion in the year-ago month. 

Net banking capital recorded an inflow of $64.7 billion in August, against an outflow of $4.7 billion a year earlier. Net non-resident Indian (NRI) deposits stood at $83 billion, compared with $1 billion in August 2025. 

The overall balance of payments recorded a surplus of $45.4 billion in August, reversing a deficit of $5.6 billion in the corresponding month last year. For April-August FY27, the overall balance of payments posted a surplus of $58 billion, compared with a deficit of $0.8 billion in the same period a year earlier.