According to a report by Crisil, remittances to India surged to $33 billion in the first quarter of FY26, up from $28.6 billion a year ago. The rise in remittance inflows, alongside a stronger services trade surplus, helped narrow the current account deficit (CAD) to $2.4 billion, or 0.2% of GDP, despite a widening merchandise trade gap.
Key Drivers of CAD Narrowing
- Personal transfer receipts (remittances): $31.1 billion in Q1 FY26, compared to $26.7 billion a year earlier.
- Services exports: Rose to $97.4 billion from $88.5 billion, boosting the services trade surplus to $47.9 billion.
- Merchandise trade deficit: Widened to $68.5 billion as imports climbed to $182 billion against exports of $113 billion.
Outlook from Crisil
Crisil projects the CAD to widen to 1.3% of GDP in FY26, up from 0.6% in FY25, as slowing global growth and US tariffs weigh on merchandise exports. However, the agency expects strong remittance inflows and services exports to cushion the impact.
Financial Flows and Reserves
- Net financial inflows: $13.2 billion in Q1, exceeding the CAD and leading to a $4.5 billion addition to forex reserves.
- FDI inflows: Increased to $27.2 billion, though outflows also rose.
- FPI inflows: Net inflows of $1.6 billion, supported by positive equity flows.
- ECBs: Rose to $3.7 billion, indicating continued corporate borrowing abroad at favorable rates.
- NRI deposits: Moderated compared with the previous year.
The rupee averaged 85.55 per dollar in Q1 FY26 versus 83.42 a year earlier. Crisil added that while India started its rate-easing cycle in February 2025, full transmission to lending rates is still underway.
Summary
India’s external sector in Q1 FY26 was supported by record remittances and robust services exports, which helped offset pressure from a higher goods trade deficit. While Crisil expects the CAD to widen over the course of FY26, the combination of healthy financial inflows and resilient external buffers suggests India’s balance of payments position remains stable.
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