India's current account slips into $2 billion deficit in May from year-ago surplus as trade gap widens

India's current account slipped into a $2 billion deficit in May 2026 from a $0.7 billion surplus a year earlier, as a wider merchandise trade deficit offset healthy services exports and stronger remittance inflows, according to preliminary data released by the Reserve Bank of India (RBI) on Wednesday.

The current account records a country's transactions with the rest of the world, including trade in goods and services, investment income and remittances. A deficit means the country paid out more foreign exchange than it received during the period.

Merchandise trade gap widens

The biggest drag on the current account came from merchandise trade, where the trade deficit widened to $27.9 billion in May from $22.6 billion a year ago.

Merchandise exports increased to $46.1 billion from $38.7 billion, but imports rose at a faster pace to $74 billion from $61.3 billion, leading to a wider gap between the two.

The services sector, however, continued to provide support. Net services exports stood at $15.7 billion, broadly stable from $15.8 billion in May 2025, with services exports rising to $33.4 billion. Services exports include sectors such as information technology, business services, financial services and travel.

India also received $13.6 billion in net transfers, primarily remittances sent home by Indians working overseas, up from $10.5 billion a year earlier.

Capital flows turn negative

The capital account, which tracks foreign investments and other capital flows, recorded a $2.4 billion deficit in May compared with a $3.7 billion surplus in the same month last year.

The deterioration was largely due to foreign portfolio investment (FPI) outflows. FPIs were net sellers of $4.7 billion during the month, compared with net inflows of $1.3 billion in May 2025. FPIs refer to overseas investors buying and selling Indian stocks, and bonds, and are generally considered more volatile than long-term investments.

Meanwhile, net foreign direct investment (FDI) stood at -$0.1 billion, compared with a positive $0.9 billion a year ago. While gross FDI inflows into India remained at $2.4 billion, overseas investments by Indian companies also stood at $2.4 billion, resulting in a marginally negative net figure.

Considering the combined impact of the current account and capital account, India's overall balance of payments recorded a $4.4 billion deficit in May, compared with a $4.4 billion surplus in the corresponding month last year.