Key Takeaways
- Current Account Deficit (CAD) narrowed sharply to $12.3 billion (1.3% of GDP) in Q2 FY26 from $20.8 billion a year ago.
- Services exports surged, with net receipts rising to $50.9 billion, and remittances grew to $38.2 billion.
- FDI turned positive with a net inflow of $2.9 billion in Q2, while FPI saw outflows of $5.7 billion.
- For the first half (H1) of FY26, the CAD stood at $15 billion, down from $25.3 billion in H1 FY25.
India’s external account showed significant improvement in the second quarter of the 2025-26 financial year, with the current account deficit narrowing substantially. The Reserve Bank of India (RBI) released preliminary balance of payments data for July-September 2025 on Monday.
Current Account and Trade Performance
The CAD moderated to $12.3 billion, or 1.3% of GDP, a notable improvement from the $20.8 billion (2.2% of GDP) recorded in the same quarter last year. The merchandise trade deficit also saw a slight reduction to $87.4 billion from $88.5 billion.
Strong Growth in Services and Remittances
A key driver was the robust performance of the services sector. Net services receipts jumped to $50.9 billion from $44.5 billion a year ago, led by growth in computer and business services.
Remittances from Indians working abroad, recorded under personal transfers, also increased to $38.2 billion from $34.4 billion, providing strong support to the current account.
Financial Account: Mixed Investment Flows
The financial account presented a mixed picture:
- Foreign Direct Investment (FDI) rebounded to a net inflow of $2.9 billion in Q2, compared to an outflow of $2.8 billion a year ago.
- Foreign Portfolio Investment (FPI), however, recorded a net outflow of $5.7 billion, a reversal from the $19.9 billion inflow seen in Q2 FY25.
- Inflows from external commercial borrowings (ECBs) and non-resident deposits were lower year-on-year.
Consequently, the country’s foreign exchange reserves (on a BoP basis) saw a depletion of $10.9 billion in Q2, contrasting with an accretion of $18.6 billion in the year-ago period.
First Half (H1 FY26) Overview
For the April-September 2025 period, the improvement was consistent. The CAD halved to $15 billion (0.8% of GDP) from $25.3 billion (1.3% of GDP) in H1 FY25.
Net invisibles receipts, which include services and transfers, rose to $141.3 billion. Net FDI inflows for H1 stood at $7.7 billion, more than double the $3.4 billion in the previous year. FPI, however, saw net outflows of $4.1 billion against inflows of $20.8 billion a year ago. Forex reserves depleted by $6.4 billion in H1 FY26.
