India’s Current Account Deficit Widens to $25.8 Billion in H1 FY27 as Import Bill Rises

India’s current account deficit (CAD) widened to $25.8 billion during the first half of financial year 2026-27, covering April to September 2026, compared with $18 billion in the corresponding period a year earlier. The increase was driven primarily by a larger merchandise trade deficit and higher net income outflows, according to preliminary balance of payments data released by the Reserve Bank of India (RBI) on November 13, 2026.

Despite the wider current account deficit, India’s overall balance of payments (BoP) position improved significantly, recording a surplus of $66.8 billion during the six-month period, compared with a deficit of $6.4 billion a year earlier. Strong banking capital inflows, particularly through non-resident Indian deposits, supported the improvement. The latest figures highlight two contrasting developments in India’s external sector: rising dependence on imports and substantial foreign capital entering the banking system.

India’s Current Account Deficit Rises to $25.8 Billion

The RBI’s preliminary data showed that India’s current account deficit increased by $7.8 billion year-on-year during the first half of FY27.

A current account deficit occurs when a country’s payments for imported goods and services, income and transfers exceed its earnings from exports and other international receipts.

The merchandise trade gap remained the biggest contributor to India’s deficit. Although merchandise exports increased substantially, imports grew at a faster pace, widening the difference between the two.

Indicator	H1 FY26	H1 FY27
Current account deficit	$18 billion	$25.8 billion
Merchandise trade deficit	$158.1 billion	$176.1 billion
Merchandise exports	$221.5 billion	$265.3 billion
Merchandise imports	$379.6 billion	$441.4 billion
Net services exports	$98.8 billion	$105 billion
Net transfers	$67.2 billion	$77.7 billion
Net income deficit	$25.8 billion	$32.4 billion

The figures show that India’s external payments position came under pressure even as export earnings improved. Higher imports and income payments more than offset the additional receipts from merchandise exports, services and transfers.

Merchandise Trade Deficit Widens as Imports Outpace Exports

India’s merchandise trade deficit expanded to $176.1 billion in H1 FY27 from $158.1 billion in the same period of the previous financial year.

Merchandise exports rose to $265.3 billion, compared with $221.5 billion a year earlier. This represented an increase of $43.8 billion.

However, imports increased by $61.8 billion, reaching $441.4 billion against $379.6 billion in H1 FY26.

The faster growth in imports explains why the merchandise trade gap widened despite stronger export performance.

Imports can include essential commodities such as crude oil, natural gas, electronics, machinery, industrial inputs and precious metals. Demand for these products can increase as domestic consumption, infrastructure investment and industrial activity expand.

A higher import bill can put pressure on the current account because more foreign currency is required to pay overseas suppliers.

The trend also highlights the importance of expanding domestic manufacturing capacity and improving export competitiveness if India wants to reduce its dependence on imported products over the longer term.

Services Exports and Remittances Provide Support

India’s services sector continued to cushion the impact of the merchandise trade deficit.

Net services exports increased to $105 billion during April-September FY27, compared with $98.8 billion in the corresponding period last year.

Services exports reached $219.3 billion, while services imports stood at $114.3 billion.

India’s services earnings include revenue from software and IT services, business consulting, financial services and other professional activities.

The country also received support from net transfers, which include remittances sent by Indians working overseas.

Net transfers increased to $77.7 billion in H1 FY27 from $67.2 billion a year earlier.

These inflows help offset payments for imported goods and income transfers to foreign investors. Without the contribution from services and remittances, India’s current account deficit would have been larger.

However, their improvement was not sufficient to offset the widening merchandise trade gap and higher income outflows.

Net Income Outflows Increase to $32.4 Billion

Another factor contributing to the wider deficit was the increase in net income outflows.

The RBI data showed that India’s net income deficit rose to $32.4 billion during H1 FY27 from $25.8 billion in the corresponding period last year.

The income account captures cross-border payments such as interest, dividends and profits associated with investments and lending.

As foreign investors earn returns on investments in India and overseas lenders receive interest payments, these transactions can create outflows from the domestic economy.

The increase in net income payments added to the pressure created by the merchandise trade deficit.

This is an important part of India’s external account because a country can record strong merchandise and services exports while still facing a wider current account deficit if income payments to overseas investors increase.

Balance of Payments Swings to $66.8 Billion Surplus

While the current account deficit widened, India’s overall balance of payments recorded a significant improvement.

The country posted a BoP surplus of $66.8 billion in H1 FY27, reversing a deficit of $6.4 billion in the same period last year.

The improvement was supported by a sharp increase in the capital account surplus, which reached $92.6 billion compared with $11.6 billion a year earlier.

Banking capital inflows played a particularly important role. They reached $125.2 billion during the six-month period, compared with just $0.3 billion in H1 FY26.

Within this category, net inflows through non-resident Indian deposits reached $125.6 billion, up sharply from $6.1 billion a year earlier.

Capital flow indicator	H1 FY26	H1 FY27
Capital account surplus	$11.6 billion	$92.6 billion
Banking capital inflows	$0.3 billion	$125.2 billion
Net NRI deposit inflows	$6.1 billion	$125.6 billion
Net FDI inflows	$7.4 billion	$8.8 billion
Net FPI flows	-$4.1 billion	-$10.4 billion
Net ECB flows	$7.2 billion	-$40.6 billion

The substantial NRI deposit inflows helped finance the current account deficit and contributed to the overall BoP surplus.

However, the capital account data also showed weakness in other categories. Foreign portfolio investment outflows increased to $10.4 billion from $4.1 billion, while external commercial borrowings recorded net outflows of $40.6 billion against net inflows of $7.2 billion a year earlier.

Net foreign direct investment inflows improved moderately to $8.8 billion from $7.4 billion.

September Current Account Deficit Reaches $7.4 Billion

The RBI’s monthly data showed that India’s current account deficit stood at $7.4 billion in September 2026, compared with $5.2 billion in September 2025.

The merchandise trade deficit actually narrowed to $30 billion from $33.4 billion a year earlier. Exports increased to $45.3 billion, while imports rose to $75.3 billion.

Net services exports improved to $19.2 billion from $18.8 billion, providing some support to the current account.

However, net transfers declined to $10.9 billion from $11.5 billion, while the net income deficit widened sharply to $7.6 billion from $2.2 billion.

On the capital account, India recorded net inflows of $16.2 billion in September, compared with net outflows of $400 million a year earlier.

Banking capital inflows of $22.2 billion supported the monthly position, although foreign portfolio investment recorded outflows of $6.7 billion.

The overall balance of payments recorded a surplus of $8.8 billion in September, compared with a deficit of $5.6 billion in the same month last year.

The Bigger Picture

India’s latest balance of payments figures demonstrate why the current account deficit and the overall external balance must be examined separately. The wider CAD reflects the growing gap between merchandise imports and exports, alongside higher income payments. At the same time, strong capital inflows helped the country record a substantial overall BoP surplus.

The composition of these inflows is particularly important. NRI deposits provided an unusually large contribution during the first half of FY27, while portfolio investment and external commercial borrowing recorded net outflows. This means the improvement in the overall external balance was not evenly distributed across different sources of foreign capital.

For India, maintaining a sustainable external position will depend on stronger exports, resilient services earnings, stable remittances and continued access to reliable foreign investment. Import costs, global energy prices and changes in international capital flows will also influence the rupee and foreign exchange reserves.

Looking Ahead

The next few months will show whether India’s merchandise trade deficit moderates and whether services exports and remittances can continue offsetting pressure from imports and income payments. The RBI will also monitor the sustainability of banking capital inflows following the unusually large contribution from NRI deposits during the first half of FY27.

Although the $66.8 billion BoP surplus provides support to India’s external position, the widening current account deficit remains an important indicator to watch. The country’s ability to attract stable capital, strengthen domestic manufacturing and expand export earnings will be central to managing external vulnerabilities during the remainder of the financial year.