CURRENT ACCOUNT DEFICIT (CAD) WIDENS SHARPLY IN JULY

CURRENT ACCOUNT DEFICIT (CAD) WIDENS SHARPLY IN JULY

With the RBI reporting the CAD on a monthly basis, the flow of the updated status is quicker and also more relevant. It is a sharp improvement from reporting CAD 3 months after the close of the quarter. For the latest month of July 2026, the current account deficit (CAD) more than doubled to $7.0 billion, compared to just $3.2 billion in July 2025. What exactly triggered the widening of this current account deficit (CAD)?

The main factor was that the merchandise trade deficit widened in July 2026, compared to the year ago period. However, the offsetting services surplus was almost flat in this period. In the last 3 months (May-Jul), the CAD has widened from $2.0 billion to $7.0 billion. While the revenue payouts abroad were higher in July, the net remittances from abroad also saw a sharp surge. August data should be a lot more interesting.

KEY TAKEAWAYS FROM THE JULY 2026 CAD

For the month of July 2026, the monthly currently account deficit (CAD) stood at $(7.00) billion. This is sharply higher than the CAD of $(3.2) billion in July 2025.

The last 3 months of May, June, and July 2026 have seen the CAD widen progressively from $(2.0) billion to $(6.20) billion to $(7.00) billion.

The main reason for this yoy widening of the CAD was the merchandise trade deficit widening from $(28.2) billion to $(31.7) billion, largely due to oil pressures.

The services surplus, which offsets the goods deficit, increased marginally yoy from $16.4 billion to $17.6 billion, leading to widening of the CAD.

CAD BASKET IN JULY 2026 VERSUS JUNE 2026

Here is an itemized comparison of CAD in July and June 2026; and how the monthly shift in CAD was arrived at.

Here are quick thoughts on CAD basket for July 2026.

The level of the current account deficit has remained elevated in June and July, although it has widened in July. The import growth have been largely offset by the growth in exports to China as India explores new export markets.

On the services side, the surplus in July was lower than June, as fears of a slowdown have made corporates wary of tech spending. However, the remittances and other net inflows have been much higher in the current month.

The longer the unrest in the Middle East continues, the more intense the pressure on the CAD. Clearly, FY27 is not going to be as simple as FY26. A lot will depend on the Middle East.

CAD BASKET FOR FINANCIAL YEAR FY27 OVER FY26

Here is a quick look at CAD for the first 4 months of FY27 and FY26.

For the first 4 months of FY27, the cumulative current account deficit (CAD) is 67.2% wider. Goods deficit is widening due to the war and the services surplus is not keeping pace. Remittances and net transfers have offered some respite, but it would still mean that the full year CAD for FY27 could be well above 1% of GDP.

WHAT DO WE SEE ON THE CAPITAL ACCOUNT?

While we have seen the current account, the capital account is important as it shows how the CAD can be funded. Net FDI in FY27 has been higher at $13.4 billion, while FPIs have been net sellers and ECBs have seen more repayments than borrowings. However, this entire story is redeemed by the massive inflow of NRI deposits, which increased in FY27 from $4.7 billion to $36.2 billion. As a result, the overall balance of payments for FY27 is already at a surplus of $12.7 billion, with FCNR(B) impact yet to show up fully!