SPECIAL REPORT – Q4FY26 CURRENT ACCOUNT TURNS INTO SURPLUS

SPECIAL REPORT – Q4FY26 CURRENT ACCOUNT TURNS INTO SURPLUS

INDIA REPORTS Q4 CURRENT ACCOUNT SURPLUS FOR THIRD YEAR

It was almost a repeat of the previous 2 financial years. Like in FY24 and FY25, the current account balance for the fourth quarter turned around from a deficit to surplus. Here are some highlights of the fourth quarter current account and for the full fiscal year FY26.

Current account surplus for Q4FY26 stood at $7.1 billion or 0.7% of the quarterly GDP. This is almost half the surplus reported in Q4FY25.

For the full year FY26, India reported a sober current account deficit (CAD) of $25.2 billion or 0.6% of the GDP. Even in FY25, the CAD was at 0.6% of GDP.

For Q4FY26, the deficit on the merchandise (goods) account showed a spike to $83.4 billion from $59.3 billion last year, due to a sharp rise in oil and gold prices.

However, this spike in the goods deficit was substantially offset by a bigger surplus on the services account, as well as surge in remittances from NRIs amid the Gulf turmoil.

Let us turn to the more granular picture of the current account for Q4 and fiscal FY26.

THE CURRENT ACCOUNT STORY OVER LAST 3 YEARS

Here is a quick look at the CAD / CAS history of last 12 quarters.

Data Source: DGFT / RBI

The current account deficit in each of the 3 previous quarters was upped subsequent to the first estimates. For instance, the Q1FY26 CAD was upped from $2.70 billion to $2.86 billion; Q2FY26 CAD was upped from 12.30 billion to $14.0 billion, and the Q3FY26 CAD was upped from 13.20 billion to $15.50 billion.

Q4FY26 happens to be the third consecutive year when the current account has been in the surplus in the fourth quarter, after being in deficit for the first three quarters. The fourth quarter turnaround (thanks to strong NRI remittances) has helped the full year current account deficit for FY26 to sober to just around 0.6% of GDP.

CAD BASKET IN MARCH 2026 QUARTER (Q4FY26)

Here is an itemized comparison of Q4FY26 CAD with Q4FY25 CAD.

Data Source: RBI

Here are quick thoughts on CAD basket for Q4FY26.

Merchandise trade deficit for Q4FY26 is sharply higher by 40.6% at $83.4 billion. While oil and gold volumes have been the same, it is the higher price that has done the damage. Silver, fertilizers, and electronics added to the trade deficit this quarter.

Services surplus was higher by 13.3% at $60.4 billion. While IT exports stayed robust, a big thrust came from the proliferation of Global Capability Centres (GCC) in India. Other big factor in the surplus this quarter was the surge in NRI remittances by 30.4% to $41.2 billion. As the Gulf turned volatile, a lot of hot NRI deposits relocated to India.

Goods trade continues to be a thorn in the flesh for India, but that is largely due to price spikes. While services surplus surge is welcome, NRI remittances may not be long-term money. Calculations need to factor that in. After all, these hot NRI deposits can go out as quickly as they came into India.

CAD BASKET FOR FINANCIAL YEAR FY26

Here is a quick look at how CAD looked at the end of the financial year.

Data Source: RBI

At 0.6% of GDP, the current account deficit for FY26 has been almost at the same level as in FY25. That is a comfortable situation to be in; and for that India needs to largely thank the surge in services exports and the robust NRI inflows in the last quarter. However, the bigger concern is what happens to the CAD in FY27?

The concerns are not hard to understand. The war has subjected India to huge doses of imported inflation and that is going to show up in import costs. Already there are talks of oil and gold staying at elevated levels; and that is not great news for the CAD. India’s economic model is import dependent, and that will not change anytime soon. The bigger question is, how India can offset that impact with higher services surplus and reliable NRI inflows!