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India’s Current Account Deficit — Q1 FY27 [Prelims Bits]

04 Sep 2026

Tags: Prelims   Current events of national and international importance

Source: The Indian Express

  • Context: India’s Current Account Deficit (CAD) widened to $4.2 billion (0.5% of GDP) in Q1 FY27, from $3.4 billion (0.4%) a year earlier, according to the Reserve Bank of India (RBI).
  • Merchandise trade deficit increased sharply to $86.1 billion from $68.9 billion, driving the wider CAD.
  • Net services receipts rose to $51.6 billion from $47.9 billion, led by computer, business and transport services.
  • Primary income outgo declined to $10.5 billion from $13.3 billion, mainly due to lower investment-income payments.
  • Personal transfer receipts, largely remittances from Indians employed overseas, increased to $42.9 billion from $33.2 billion.
  • FDI inflows rose to $6.1 billion, while FPI recorded a net outflow of $9.6 billion.
  • NRI deposit inflows declined to $2.8 billion; External Commercial Borrowings (ECBs) inflows fell to $3.3 billion.
  • Forex reserves declined by $8.1 billion on a Balance of Payments basis, against an accretion of $4.5 billion in Q1 FY26.
  • Prelims: CAD covers goods, services, primary income and secondary income/transfers. A CAD can be financed through financial-account inflows such as FDI, FPI and borrowings.

Prelims Question

Q1. Assertion (A): India can experience a widening Current Account Deficit even when its services exports and remittance receipts increase.

Reason (R): The current account incorporates multiple components, and a substantial deterioration in the merchandise trade balance can outweigh improvements in services receipts and transfers.

(a) Both A and R are correct, and R is the correct explanation of A.
 (b) Both A and R are correct, but R is not the correct explanation of A.
 (c) A is correct, but R is incorrect.
 (d) A is incorrect, but R is correct.

Answer: (a)

Explanation:
 The Q1 FY27 data illustrates this relationship. Net services receipts and personal transfers increased, but the merchandise trade deficit widened substantially. Consequently, the improvement in services and remittances was insufficient to prevent the CAD from widening.

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