India's current account deficit (CAD) narrowed to $14.5 billion, or 1.9% of GDP, in the fourth quarter of 2025-26, the Reserve Bank of India reported on June 8. This marked an improvement from the $18.1 billion deficit recorded in the previous quarter, reflecting a better trade balance and resilient services exports during January-March 2026.
The RBI's data showed that the merchandise trade deficit contracted due to a rise in exports and a moderation in imports. Services exports remained robust, supported by software and business services. Net invisibles, including remittances and software services, contributed positively to the balance of payments. Capital flows remained strong, with foreign direct investment and portfolio inflows supporting the external sector.
The narrowing CAD is significant as it indicates improved external sector stability amid global economic uncertainties. Compared to previous quarters, the moderation in the deficit reduces pressure on the rupee and foreign exchange reserves. The RBI's report highlights the resilience of India's export sector and the importance of services in balancing the external accounts, aligning with the government's focus on export-led growth.
India's foreign exchange reserves stood at $642 billion at the end of March 2026, providing a comfortable buffer against external shocks. The RBI's next quarterly balance of payments update is expected after the end of June 2026, which will offer further insights into the external sector's performance.