India’s current account deficit (CAD) edged up to $3.1 billion in the first quarter of fiscal year 2027, driven by a higher merchandise trade gap. While a strong surplus in services and remittances offered relief, capital outflows led to an overall balance of payments deficit of $8.1 billion. Market participants may track these external sector dynamics as they influence currency stability and monetary policy outlooks.
India's current account deficit (CAD) widened slightly to $3.1 billion in the first quarter of the 2027 fiscal year, according to recent data released by the Reserve Bank of India. This result reflects a marginal deterioration compared to the $2.9 billion deficit recorded during the same period in the previous year.
The primary contributor to this widening was an expansion in the merchandise trade deficit, which rose to $85.7 billion from $68.9 billion year-on-year. This increase was largely fueled by rising import bills for essential commodities, particularly crude oil, amidst ongoing geopolitical tensions that have impacted global supply chains. Although export performance also improved, the growth in import value outpaced the growth in goods exports, creating a drag on the current account.
Despite the pressure from the goods trade balance, the overall deficit remained contained due to robust performances in other areas. The services sector continued to act as a significant buffer, with the net services trade surplus expanding to $52.2 billion, up from $47.9 billion in the prior year. Additionally, net transfer receipts, which are primarily driven by remittances from Indians working abroad, reached $41.4 billion. These inflows provided necessary support to the current account and prevented a sharper increase in the headline deficit number.
A notable shift occurred in the capital account, which tracks cross-border financial flows such as foreign investments. During the quarter, the capital account transitioned from a surplus of $7.4 billion in the previous year to a deficit of $5 billion. This reversal was primarily attributed to outflows by foreign portfolio investors (FPIs). As a result, the country's overall balance of payments, which reflects the net change in foreign currency reserves, recorded a deficit of $8.1 billion, contrasting with a surplus of $4.5 billion a year ago.
Looking ahead, analysts have adjusted their projections for the full fiscal year 2027, with the CAD now estimated to hover around 1.3% of GDP. This forecast assumes an average Brent crude oil price of approximately $85 per barrel. Investors and market watchers will likely monitor future trade data, specifically the impact of potential volatility in gold and semiconductor prices, as well as the stability of capital flows, as these factors remain central to the country's external balance position.