Merchandise trade deficit in Q1FY27 at $86.1 billion was higher than $68.9 billion in Q1FY26
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India’s current account deficit (CAD) widened to $4.2 billion in the first quarter (Q1) of FY27 against $3.4 billion in the year ago quarter due to higher merchandise trade deficit.In percentage terms, CAD nudged up marginally to 0.5 per cent of GDP in Q1FY27 from 0.4 per cent Q1FY26.Current account deficit occurs when a country’s total imports of goods, services, and transfers exceed its total exports and transfers out.Merchandise trade deficit in Q1FY27 at $86.1 billion was higher than $68.9 billion in Q1FY26. Net services receipts increased to $51.6 billion from $47.9 billion a year ago.“Services exports have risen on a year-on-year basis in major categories such as computer services, other business services and transportation services,” per RBI’s statement relating to preliminary data on India’s balance of payments (BoP).Net outgo on the primary income account, mainly reflecting payments of investment income, decreased to $10.5 billion from $13.3 billion.Personal transfer receipts under secondary income account, mainly representing remittances by Indians employed overseas, rose to $42.9 billion from $33.2 billion.Aditi Nayar, Chief Economist, ICRA, noted thatIndia’s CAD rose slightly to $4.2 billion in Q1 FY27 from $3.4 billion in the year ago quarter, with the material widening in the merchandise trade deficit owing to the surge in commodity prices being largely offset by the healthy expansion in net invisible earnings.“With this, the CAD was contained at a comfortable 0.5 per cent of GDP in the quarter, as against 0.4 per cent in Q1 FY26, in spite of the ongoing challenges posed by the West Asia crisis.Financial AccountIn the financial account, foreign direct investment (FDI) recorded a net inflow of $6.1 billion in Q1FY27, higher than $5.2 billion in Q1FY26.Foreign portfolio investment (FPI) recorded a net outflow of $9.6 billion in Q1FY27 as against a net inflow of $1.6 billion in Q1FY26. Non-resident deposits saw a net inflow of $2.8 billion as compared to $3.6 billion.Net inflows under external commercial borrowings (ECBs) to India were lower at $3.3 billion as compared to $4.4 billion.Nayar observed that the country witnessed capital outflows for the third consecutive quarter in Q1 FY2027, led by sustained FPI outflows, which led to a drawdown of reserves to the tune of $8.1 billion, despite the low CAD print.Looking ahead, ICRA expects the CAD to widen in Q2 and Q3 FY2027, relative to the Q1 levels, which would push up the full-year print to 0.9 per cent of GDP, up from 0.7 per cent in FY26, while remaining quite manageable.Nayar emphasised that this would be comfortably financed, aided by the sizeable FCNR(B) inflows, which should lead to an accretion to reserves in FY27 after a gap of two years.Published on September 1, 2026
