India’s current account deficit tightened to $5.2 billion in August 2026, aided by a smaller trade gap and strong services exports. A surge in capital inflows and NRI deposits led to a $45.4 billion balance of payments surplus, providing a buffer for the economy and currency stability.
India’s external balance sheet showed a significant improvement in August 2026, with the current account deficit narrowing to $5.2 billion. This shift was primarily driven by a smaller merchandise trade gap and a resilient performance in the services sector.
In August, the merchandise trade gap decreased to $26.6 billion, an improvement from $27.6 billion in the same month last year. While total imports were $71.3 billion, exports held steady at $44.7 billion. The services sector continued to act as a key support, delivering a trade surplus of $16.5 billion, which helped offset the pressure from the income account deficit of $8 billion.
Beyond trade, the country saw a major turnaround in capital flows. Net foreign direct investment reached $3.3 billion, while foreign portfolio investors invested $1.7 billion. This change in sentiment, combined with $64.7 billion in banking capital inflows and $83 billion in non-resident Indian deposits, pushed the overall balance of payments to a surplus of $45.4 billion. This marks a sharp recovery from the $5.6 billion deficit recorded during the same period in the previous year.
While the current data indicates strong stability, analysts suggest monitoring the outlook closely. ICRA has projected that the deficit might widen in the coming months, reaching an estimated range of $13 billion to $15 billion for the second quarter of fiscal year 2027. Factors such as potential changes in remittance inflows and fluctuations in earnings from services could influence these figures.
For investors, the recent trend highlights improved external stability. Although the cumulative deficit for the April-August period stands at $18.3 billion, the total surplus position of $58 billion for the five-month span serves as a strong cushion for the domestic currency. The key monitorable for the coming quarter will be whether export growth can maintain its pace amid global trade volatility and if the current trend in capital inflows remains sustainable.