India’s external sector made a significant turnaround in the last quarter of FY26, with the current account running a surplus of $7.1 billion (0.8% of GDP) which was a remarkable improvement from the $8.7 billion deficit (1% of GDP) in the same quarter of FY25. As such, the country’s trade and capital flows have been at least as strong in the face of global uncertainty.
The surplus was mainly driven by a smaller merchandise trade deficit, which fell to $54.7 billion in Q4 FY26 from $59.9 billion a year ago. Services exports, particularly software, business and travel services, helped boost the external balance. Net services receipts rose to $44.9 billion, in line with India’s growing dominance in the global IT and outsourcing sector.
Private transfer receipts, mainly remittances from Indians working abroad, also contributed positively and rose to $34.2 billion from $31.9 billion in Q4 FY25. It indicates that the Indian diaspora is still essential to the country’s external finances.
On the capital account, net foreign direct investment (FDI) inflow was $8.6 billion (as compared to $11.2 billion in Q4 FY25). However, portfolio investment recorded net inflows of $5.3 billion (as opposed to outflows in Q4 FY25). In addition to that, external commercial borrowings and banking capital helped to shore up the surplus as investors gained confidence in the stability of India's macroeconomic environment.
For the full fiscal year FY26, India’s current account deficit (CAD) was reduced to $23.2 billion (0.7% of GDP) as compared to $67 billion (2% of GDP) in FY25. Strong services exports and resilient remittances helped offset the impact of high global commodity prices on the country’s economy.
Economists say that the surplus in Q4 FY26 provides some cushion for the rupee and strengthens India’s foreign exchange reserves, which are now at $650 billion. But, further to the fore, the economy will depend on global demand, crude oil prices and the flow of capital in FY27.
The $7.1 billion current account surplus in Q4 FY26 signals a healthier external position for India, driven by strong services exports, resilient remittances and a smaller trade deficit. Challenges are still there, but a surplus in India’s current account is good news for India’s financial stability and the country is also good for the global economy.
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