Key Highlights from RBI Data (Q1 FY26)
- India’s Current Account Deficit (CAD) declined to USD 2.4 billion (0.6% of GDP) in April–June 2025 quarter, compared to USD 9.2 billion (1.1% of GDP) in the same quarter last year.
- The improvement was primarily due to:
- Lower trade deficit: Strong growth in services exports (IT, consulting, financial services) and a moderation in imports.
- Robust remittances: Private transfer receipts (mainly workers’ remittances) rose to USD 28.3 billion, registering a 7% y-o-y growth.
- Stable capital flows: Net FDI inflows stood at USD 7.5 billion, while portfolio investments recorded inflows of USD 4.1 billion.
- Forex Reserves Impact: India’s foreign exchange reserves rose by USD 22.8 billion during Q1 FY26, providing a comfortable buffer.
Why It Matters
- A narrower CAD signals stronger external sector stability, reducing India’s vulnerability to global shocks like oil price volatility or capital outflows.
- It strengthens the rupee’s resilience, aids in controlling inflation, and supports India’s sovereign credit profile.
- The improvement also reflects India’s services-led growth model, where IT, digital exports, and remittances play a critical role.
UPSC Relevance
- GS-3 (Indian Economy): Balance of Payments, External Sector, Forex Management.
- Prelims: Trends in CAD, FDI, and Forex Reserves are frequently tested.
- Mains:
- “Discuss the significance of India’s services sector and remittances in managing the Current Account Deficit.”
- “How does a widening CAD impact inflation, exchange rates, and growth?”
Related PYQ (UPSC Prelims 2020):
With reference to India’s balance of payments, which of the following constitutes the current account?
- Balance of trade
- Net income from abroad
- Net current transfers
Correct Answer: All three