India's balance of payments recorded a $4.4 billion deficit in May, improving from $6.6 billion in April. The shortfall was driven by a rising trade deficit and net foreign capital outflows, despite support from steady services exports and remittances. The outlook for FY27 remains cautious due to potential fluctuations in global crude oil prices.
India’s balance of payments, which tracks the money flowing into and out of the country, reported a deficit of $4.4 billion for May 2026. While this is an improvement from the $6.6 billion deficit seen in April, it marks a significant shift from the $4.4 billion surplus recorded in May 2025. Data from the Reserve Bank of India shows that the country continues to face challenges from both its trade position and movement in capital.
Impact of Wider Trade Gap
The current account, which measures the net flow of goods, services, and transfers, moved into a $2 billion deficit for the month of May. A year earlier, this account had shown a $700 million surplus. The primary driver behind this shift was a jump in merchandise imports, which reached $74 billion, significantly outpacing export performance. Consequently, the merchandise trade deficit expanded to $27.9 billion, compared to $22.6 billion during the same month last year.
Some of this pressure was balanced by the services sector and remittances. Net services exports provided stability at $15.7 billion, while net transfers—largely money sent home by Indian workers abroad—rose to $13.6 billion from $10.5 billion in May 2025. However, net income outflows of $3.4 billion added to the overall deficit.
Capital Outflows Weigh on Balances
The capital account, which records investments and loans, also showed weakness with a net outflow of $2.4 billion in May. This is a sharp reversal from the $3.7 billion net inflow recorded in the same month of the previous year. Foreign portfolio investors were net sellers, withdrawing $4.7 billion. Additionally, foreign direct investment saw a net outflow of $100 million, contrasting with the $900 million inflow observed in May 2025.
Outlook and External Risks
Looking at the first two months of the current fiscal year, April and May 2026, India recorded a cumulative current account surplus of $2.8 billion. This is a recovery compared to the $4.1 billion deficit in the same period last year, helped by stronger export demand and higher remittances. However, the external sector remains sensitive to global factors. Specifically, rising crude oil prices due to ongoing geopolitical tensions in the Middle East have increased the cost of imports and contributed to the pressure on the rupee. Investors may monitor future updates on trade data and oil prices, as these will likely influence the balance of payments trajectory throughout the remainder of the fiscal year.