CURRENT ACCOUNT DEFICIT (CAD) NARROWS IN AUGUST 2026

CURRENT ACCOUNT DEFICIT (CAD) NARROWS IN AUGUST 2026

After doubling from $3.2 billion to $7.0 billion between June and July 2026; the current account deficit (CAD) for August 2026 has narrowed to $5.3 billion. The merchandise trade deficit for August was sharply lower than in July and that led to the narrowing of the CAD in August 2026. Now, the RBI not only reports the CAD data on a quarterly basis, but also on a monthly basis with a lag of 1 month. This ensures more current CAD data flows.

The main factor was that the merchandise trade deficit narrowing sharply in August 2026, compared to July 2026 as well as on a yoy basis. However, the services surplus and the inflows from remittances were only marginally higher, so the full impact of the merchandise trade deficit narrowing got factored into the CAD. At the end of 5 months, the CAD seems to be well in control, despite the war and the global supply chain disruptions.

KEY TAKEAWAYS FROM THE AUGUST 2026 CAD

For the month of August 2026, the monthly currently account deficit (CAD) stood at $(5.3) billion. This is sharply lower than the CAD of $(6.1) billion in August 2025.

After 3 months of CAD widening in May, June, and July 2026; August 2026 bucked the trend as the CAD narrowed to $5.3 billion, due to lower goods deficit.

Apart from the lower merchandise trade deficit, the other key drivers like services surplus and the inward remittances were largely static on a comparative basis.

The services surplus, which offsets the goods deficit, only increased marginally from $15.6 billion to $16.5 billion yoy. This was largely on account of the AI impact.

CAD BASKET IN AUGUST 2026 VERSUS JULY 2026

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

Here are quick thoughts on CAD basket for August 2026.

The big delta factor was the narrowing of the merchandise trade deficit. While the goods imports has not really changed much, India has seen a surge in the exports of diesel and other petroleum products to China and European countries.

On the services side, the surplus in August was just marginally higher than July, as fears of a slowdown have made corporates wary of tech spending. AI also had an impact. The remittances and other net inflows have been robust in the current month.

The positive takeaway is that the continued unrest in the Middle East and disruption of oil supply lines have not really impacted the current account deficit as badly as it was expected to do. That is the good news!

CAD BASKET FOR FINANCIAL YEAR FY27 OVER FY26

Here is a quick look at CAD for the first 5 months of FY27 and FY26.

For the first 5 months of FY27, the cumulative current account deficit (CAD) is 41.1% wider. However, the offsetting impact of services surplus and inward remittances has been quite strong. Even if one were to annualize the CAD, it looks unlikely to cross 1.0% to 1.2% of the nominal GDP. That would be a good way to end a tough and challenging year.

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 by 43.8% at $13.8 billion, while FPIs continue to be net sellers. 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 $5.6 billion to $119.2 billion. As a result, the overall capital account for FY27 is showing a massive surplus of $76.3 billion, and a BOP surplus of $58.0 billion.