India recorded a current account deficit of $2 billion in May 2026, shifting from a surplus a year ago. This was driven by a rising merchandise trade gap, even as service exports and remittances remained steady. Investors are watching how these trends, combined with foreign portfolio outflows, impact the overall balance of payments.
India’s balance of payments saw a notable shift in May 2026, as the country recorded a current account deficit of $2 billion. This figure marks a reversal from the $0.7 billion surplus seen in the same month last year, according to preliminary data released by the Reserve Bank of India. The current account is a vital economic measure that tracks a country’s trade in goods, services, and transfer payments with the rest of the world.
The primary pressure on the current account originated from the merchandise trade segment. While India’s merchandise exports showed growth, reaching $46.1 billion compared to $38.7 billion in the previous year, this increase was outpaced by a sharper rise in imports. Imports climbed to $74 billion from $61.3 billion, pushing the merchandise trade deficit to $27.9 billion. This expansion in the goods trade gap was the main factor behind the overall deficit.
Resilience in Services and Remittances
Despite the widening deficit in physical goods, the services sector and personal remittances continued to provide a necessary buffer for the economy. Net services exports held steady at $15.7 billion, demonstrating the sector's consistent performance. India’s strength in areas such as information technology, tourism, and financial services remains a backbone for stable foreign exchange earnings. Additionally, net transfers—largely consisting of remittances from Indians working overseas—reached $13.6 billion, up from $10.5 billion a year prior. These inflows are crucial for balancing the total current account position.
Impact of Capital Account Movements
Beyond trade, the capital account also experienced significant volatility in May. This account, which tracks foreign investments, recorded a deficit of $2.4 billion, a sharp turn from the $3.7 billion surplus in May 2025. This shift was largely attributed to foreign portfolio investment (FPI) outflows, as investors withdrew a net $4.7 billion. In contrast, the same period last year saw net inflows of $1.3 billion. Foreign direct investment (FDI) also remained muted, with a net figure of -$0.1 billion, as domestic companies' overseas investments balanced out incoming foreign capital.
Combined, these factors resulted in an overall balance of payments deficit of $4.4 billion for the month of May. For investors, the key monitorable will be how trade dynamics evolve in the coming months, particularly the relationship between export growth and import demand. Sustained pressure on the trade balance, combined with fluctuating foreign investment flows, will influence currency stability and the Reserve Bank of India’s approach to liquidity management in the near term.