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India’s Current Account Deficit Seen Manageable Despite Trade Widening
India buys and sells goods and services with other countries.
In the first quarter of FY27, India spent slightly more abroad than it earned, creating a current account deficit of $4.2 billion.
This was partly because energy became more expensive and the goods trade deficit grew.
The conflict in West Asia also contributed to the wider trade gap.
Economists think the deficit may grow in the next quarter, but they do not expect a serious problem.
India earns money from services such as computer and business services, which helps offset goods imports.
Indians living abroad also sent more money home.
Expected foreign investment and special deposits from non-resident Indians should help cover the deficit.
India’s current account deficit rose to $4.2 billion, or 0.5% of GDP, in Q1FY27.
The deficit widened as higher energy prices and the goods trade gap increased amid the West Asia war.
Economists expect the deficit to widen in the following quarter but see no major full-year risk.
ICRA projects FY27’s CAD at about 0.9% of GDP, up from 0.7% in FY26.
Services receipts, remittances, FDI and expected FCNR(B) inflows should help finance the deficit.
- Who
- India, the Reserve Bank of India, economists and foreign investors.
- What
- India’s current account deficit widened to $4.2 billion, or 0.5% of GDP, in Q1FY27.
- Where
- India and its external trade and financial accounts.
- When
- April-June of FY27; the data was released on Tuesday, with projections covering FY27.
- Why
- Higher energy prices and a wider merchandise trade deficit, linked partly to the war in West Asia, increased the deficit.
Manageable Outlook
Widening Deficit Risks
Full-year current account position
Manageable Outlook
Economists and ICRA expect the FY27 deficit to remain comfortably manageable and financeable, supported by FCNR(B) inflows, services receipts and foreign-exchange reserves.
Widening Deficit Risks
Higher energy prices and the wider merchandise trade deficit could push the current account deficit higher, particularly in the next quarter.
Balance of payments
Manageable Outlook
Large capital inflows through the Reserve Bank of India’s special FCNR window, recovering foreign portfolio inflows and record-high reserves are expected to keep the balance-of-payments position in check.
Widening Deficit Risks
The balance of payments recorded an $8.1 billion deficit in Q1FY27 because capital inflows did not fully cover the current account deficit.
Key facts
- Q1FY27 CAD
- $4.2 billion, equal to 0.5% of GDP
- Year-ago CAD
- $3.4 billion, or 0.4% of GDP, in Q1FY26
- Q1FY27 BoP
- An $8.1 billion deficit, compared with a $4.5 billion surplus a year earlier
- Merchandise trade deficit
- $86.1 billion in Q1FY27, up from $68.9 billion a year earlier
- Net services receipts
- $51.6 billion in Q1FY27, compared with $47.9 billion a year earlier
- Personal transfer receipts
- $42.9 billion, up from $33.2 billion a year earlier
- ICRA FY27 forecast
- CAD of around 0.9% of GDP, compared with 0.7% in FY26
- Foreign portfolio investment
- A $9.6 billion net outflow in Q1FY27, followed by $7.7 billion in net inflows during July-August
Quotes
Reserve Bank of India
India’s central bank
“CAD can be higher in Q2 because the trade deficit was higher in July. But we don’t see any extreme risk to the full-year CAD number which was expected earlier in the year”
financialexpress.com
“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”
financialexpress.com
Sources
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