India's current account surplus nearly halved to $7.1 billion (0.7% of GDP) in Q4 FY2026, down from $13.7 billion (1.4% of GDP) in the corresponding quarter of the previous year, according to data released by the Reserve Bank of India. The decline was primarily driven by a significantly wider merchandise trade deficit, which expanded to $83.4 billion in the quarter ended March from $59.3 billion a year earlier. However, this was partially offset by strong performance in the services sector and record remittance inflows, with net services receipts rising to $60.4 billion compared with $53.3 billion in the fourth quarter, led by robust growth in computer services and business services exports. As per Business Standard, the surplus stood at $13.7 billion, or 1.4% of GDP, in the fourth quarter of 2024-25, highlighting the significant year-over-year decline. The RBI noted that the merchandise trade deficit stood at $83.4 billion, higher than $59.3 billion during the same period last year, but the overall balance of payments posted a surplus of $7.2 billion in Q4, compared with a deficit of $24.4 billion in Q3.
India benefited significantly from stronger remittance inflows during the quarter, with personal transfer receipts under the secondary income account, mainly representing remittances by Indians employed overseas, rising to a record $43.5 billion in Q4 FY26 from $33.9 billion in the year-ago period. According to Barclays, "With the outbreak of conflict in the Middle East, there could have been an increase in transfers from GCC countries as a precautionary measure towards the end of Q4." The services sector demonstrated remarkable resilience amid challenging global conditions, with the increase led by robust growth in exports of computer services and other business services. Services exports increased on a year-on-year basis in major categories such as computer services and other business services, as reported by RBI's data on Developments in India's Balance of Payments during the Fourth Quarter (January-March) of 2025-26. The net outgo under the primary income account, which mainly reflects investment income payments, eased to $11.1 billion from $11.9 billion a year earlier, providing some relief to the current account balance.
The widening merchandise trade deficit was the primary driver of the current account deterioration, with higher import bills outweighing gains from India's services sector and overseas remittances. However, India showed signs of improvement in foreign direct investment flows, with net FDI inflows rising sharply to $4.2 billion in the quarter ended March compared with just $0.4 billion in the corresponding period last year, indicating continued long-term investor confidence in the Indian economy. On the other hand, foreign portfolio investment flows remained under pressure, with FPIs recording a net outflow of $12 billion during the quarter, significantly higher than the outflow of $5.9 billion seen a year ago, reflecting volatile global capital flows and investor caution. The RBI also noted that non-resident deposits recorded a net inflow of $3.3 billion during the quarter, higher than $2.8 billion a year earlier, while net inflows under external commercial borrowings moderated to $3.6 billion from $7.5 billion.
For the full fiscal year 2025-26, India's current account deficit stood at $25.2 billion, or 0.6% of GDP, compared with $22.9 billion, also 0.6% of GDP, in 2024-25. The RBI noted that foreign exchange reserves, on a BoP basis, declined by $23.6 billion during FY26 compared with a depletion of $5 billion in the preceding fiscal. Net FDI inflows during FY26 rose to $6.9 billion from $1 billion a year ago, while FPIs recorded net outflows of $16.4 billion as against net inflows of $3.6 billion in FY25. The overall balance of payments recorded a deficit of $23.6 billion in FY26, significantly wider than the $5 billion deficit in FY25. ICRA's Rahul Agrawal expects the current account deficit to more than double in FY27 compared with FY26 levels, owing to the surge in global energy prices following the West Asia conflict. He added that "While the recent measures to attract capital flows by the Government of India and the RBI are expected to provide some respite, these may remain insufficient unless net FDI inflows improve materially from current levels."
India should conduct a comprehensive audit of its existing free trade agreements to assess their effectiveness in enhancing export performance, according to a new report titled 'Resilience in a Fragmenting World: India's Economic Relations with Great Powers'. The report, released by Koan Advisory Group in association with Chintan Research Foundation, Information Technology Industry Council, and Institute of Chinese Studies, highlights growing concerns that these pacts may primarily facilitate partner countries' entry into the Indian market rather than boosting export competitiveness. "Trade agreements cannot be treated as ends in themselves. India needs a clearer understanding of what each agreement delivers in terms of market access, supply-chain resilience and industrial capacity," said Shishir Priyadarshi, President, Chintan Research Foundation, as quoted in Outlook Business. The report calls on India to reassess the effectiveness of its existing Free Trade Agreements (FTAs), modernise its investment screening architecture, and adopt a more coordinated trade and industrial policy framework as geopolitical fragmentation reshapes global commerce.
According to Chintan Research Foundation President Shishir Priyadarshi, India needs a clearer understanding of what each agreement delivers in terms of market access, supply-chain resilience, and industrial capacity. The report calls for better alignment between trade, industrial and tax policies, rationalisation of non-tariff barriers such as Quality Control Orders, modernisation of India's Bilateral Investment Treaty framework and broader policy consultations involving startups and smaller businesses. As reported by The Hindu BusinessLine, the report recommends that India should explore high-quality market arrangements and utilise multilateral institutions and bilateral investment treaties to secure greater predictability for businesses and investors. It also identifies opportunities in emerging sectors such as artificial intelligence and data infrastructure, recommending deeper technology partnerships with the United States and stronger safeguards against disruptive export controls. The report emphasizes that India's economic strategy must move beyond reactive policymaking and focus on proactive integration through calibrated partnerships, stronger institutional coordination and clearer market access objectives in a more uncertain and protectionist world.
