How Did India Turn a USD 4.1 Billion Deficit Into a Surplus in Just One Year?

India's external sector began the current financial year on a stronger footing, with the country recording a USD 2.8 billion current account surplus during April-May 2026 , reversing a USD 4.1 billion deficit seen in the same period last year. According to the latest Reserve Bank of India (RBI) data, the turnaround was driven largely by a sharp rise in overseas remittances and healthy growth in services exports , helping offset the impact of a widening merchandise trade deficit.

The current account captures the country's transactions with the rest of the world, including trade in goods and services, investment income and transfers such as remittances. A surplus indicates that inflows exceeded outflows during the period.

Despite the encouraging current account position, India's overall balance of payments (BoP) slipped into a USD 11 billion deficit in the first two months of FY27, compared with a USD 5 billion surplus during the corresponding period last year. The decline reflected increased capital outflows, particularly from foreign portfolio investors.

The country's merchandise trade deficit widened to USD 55.9 billion in April-May from USD 49.7 billion a year earlier. Imports climbed to USD 146.5 billion , while exports also registered healthy growth, rising to USD 90.7 billion from USD 77.4 billion in the same period last year.

India continued to benefit from the resilience of its services sector. Net services receipts increased to USD 34.3 billion , supported by services exports rising to USD 70.4 billion from USD 65.3 billion a year earlier.

Another major contributor to the surplus was the significant increase in net transfers , largely reflecting higher remittances from Indians working overseas. These inflows rose to USD 29.6 billion , up sharply from USD 20 billion in April-May 2025. Meanwhile, the country's net income outgo improved marginally to USD 5.2 billion .

On the capital account, net foreign direct investment (FDI) more than doubled to USD 6.5 billion , indicating sustained long-term investor confidence. However, this was outweighed by foreign portfolio investment (FPI) outflows, which widened sharply to USD 12 billion , compared with USD 0.8 billion in the year-ago period.

The latest RBI data highlights the resilience of India's external sector, with strong services exports and remittance inflows cushioning the economy against a wider trade gap. However, the sharp rise in portfolio outflows underscores continued global financial uncertainties that remain a key challenge for the country's external balance.