India’s current account deficit narrows to $5.2 billion in August on strong services exports

NEW DELHI: India’s current account deficit (CAD) narrowed to $5.2 billion in August 2026, driven by a lower merchandise trade gap and robust services exports, while massive foreign currency inflows pushed the overall balance of payments (BoP) into a substantial surplus, Reserve Bank of India (RBI) data showed on Thursday.

The overall BoP recorded a surplus of $45.4 billion in August, a sharp turnaround from a deficit of $5.6 billion in the same month last year. This improvement was primarily anchored by a surge in banking capital inflows, which reached $64.7 billion, compared to an outflow of $4.7 billion a year earlier. Non-resident Indian (NRI) deposits were the standout contributor, jumping to $83 billion during the month from just $1 billion in August 2025.

On the current account, the merchandise trade deficit narrowed to $26.6 billion in August from $27.6 billion a year ago, as goods exports rose to $44.7 billion and imports stood at $71.3 billion. The services trade surplus also expanded to $16.5 billion, while net transfers, largely comprising remittances, increased to $12.8 billion. However, the net deficit in the primary income account widened to $8 billion.

Foreign direct investment (FDI) recorded net inflows of $3.3 billion, reversing a net outflow of $0.1 billion in August 2025, while foreign portfolio investment (FPI) saw net inflows of $1.7 billion. Conversely, external commercial borrowings (ECBs) witnessed a sharp net outflow of $22.4 billion.

Despite the monthly improvement, the cumulative CAD for the April-August period widened to $18.3 billion from $12.8 billion a year ago, reflecting sustained pressure from a higher merchandise trade gap. The massive NRI deposit inflows indicate that recent regulatory measures by the RBI to attract overseas funds have yielded immediate results, buffering the domestic currency and bolstering external reserves. Speaking on the broader trade trends, Aditi Nayar, chief economist at Icra, noted, "India's merchandise exports expanded by over 20 per cent for the second consecutive month in September 2026, even as growth in such imports cooled," adding that the CAD is expected to widen in the second quarter.

Looking ahead, the RBI's overall BoP surplus for the April-August period stood at $58 billion, providing a strong cushion against global volatility. In a separate development, the central bank clarified that its new Foreign Exchange Risk Reserve (FERR) requirements will apply only to specified foreign exchange derivative contracts involving the purchase of foreign currency against the rupee, a move aimed at regulating currency exposures.