Q1FY26 Current Account Deficit sharply lower at 0.2% of GDP

2 Sep 2025 , 02:27 PM

Q1FY26 FLATTERS WITH CAD OF JUST $(2.40) BILLION

When the Q1FY26 current account deficit was announced, there were 3 interesting shifts visible. Like in Q4FY25, when India had reported a current account surplus of $13.50 Billion, the rather low CAD of $(2.40) Billion in Q1FY26 was led by higher services surplus and higher NRI remittances. Secondly, the average current account deficit in the June quarter over the previous 3 years was $(11.83) Billion.

In contrast, In the June 2025 quarter, the CAD was just $(2.40) Billion. Thirdly, the RBI has moved back the date of announcement of CAD for the quarter by a month. It will now be announced just after the GDP data, rather than at the end of the next quarter. That clearly looks like a big shift happening in the current account management. But, first, let us look at the CAD / CAS history of last 13 quarters.

Quarter	Current Account Balance
Quarter Ended March 2022	$(13.40) Billion
Quarter Ended June 2022	$(17.95) Billion
Quarter Ended September 2022	$(30.89) Billion
Quarter Ended December 2022	$(16.82) Billion
Quarter Ended March 2023	$(1.34) Billion
Quarter Ended June 2023	$(8.95) Billion
Quarter Ended September 2023	$(11.26) Billion
Quarter Ended December 2023	$(10.42) Billion
Quarter Ended March 2024	$4.59 Billion
Quarter Ended June 2024	(8.60) Billion
Quarter Ended September  2024	$(16.70) Billion
Quarter Ended December  2024	$(11.30) Billion
Quarter Ended March 2025	$13.50 Billion
Quarter Ended June 2025	$(2.40) Billion

Data Source: DGFT / RBI (Previous figures revised where applicable)

In recent memory, it is quite rare that the Indian economy has begun the first quarter of a financial year with such a low current account deficit (CAD) of just $(2.40) Billion. While merchandise trade deficit in Q1FY26 has been higher than in Q1FY25, that was more than compensated by a sharply higher services trade surplus and higher remittances from NRIs. However, this is the data only up to the end of June and the pressure of punitive tariffs will only be visible in the September quarter, and more prominent, in the December quarter. Here is a look at the granular break-up of the CAD data for June 2025 quarter (Q1FY26).

HOW CAD BASKET SHAPED UP IN JUNE 2025 QUARTER?

Here is the break-up of the current account for the June 2025 quarter (Q1FY26) and how it compares with Q1FY25.

Pressure on Current Account	Q1 FY26 Break-up	Q1 FY25 Break-up	Boost to Current Account	Q1 FY26 Break-up	Q1 FY25 Break-up
Trade Deficit	($68.50 bn)	($63.80 bn)	Services Surplus	+$47.90 bn	+$39.70 bn
Primary A/C – Interest	($12.80 bn)	($10.90 bn)	Secondary Income	+$31.00 bn	+$26.40 bn
Negative Thrust on CA	(-$81.30 bn)	(-$74.70 bn)	Positive Thrust on CA	+$78.90 bn	+$66.10 bn
		Current Account Surplus / (Deficit)		$(2.40) bn	$(8.60) bn

Data Source: RBI

Here are quick thoughts on CAD basket for Q1FY26.

• June 2025 quarter merchandise trade deficit at $(68.50) Billion is sharply higher than the sequential quarter and the year ago quarter. While POL deficit is flat, most of the trade deficit has arisen from electronic goods, machinery, rare earths, gold etc. Exports continued to be under pressure, although the import impact was offset by Russian oil. In terms of other outflows, the interest and dividend payouts were marginally higher yoy.
• Let us now turn to the current account boosters. For Q1FY26 services trade surplus at $47.90 Billion was 20.7% higher than the $39.70 Billion in Q1FY25. Even the secondary income, representing remittances from abroad, is higher by 17.4% yoy at $31.00 Billion. This can be largely attributed to the recent weakening of the rupee.

What stands out about Q1FY26 is that the current account deficit at $(2.40) Billion is sharply lower than last year and almost one-fourth of the average CAD of the last 3 June quarters. While trade deficit has been elevated on goods, that has been largely compensated by a spike in the surplus on the services account and from NRI remittances.

CAD OUTLOOK FOR FY26

One quarter may be short a time to get a full year outlook. However, this is the first time in recent memory that the Q1 CAD has been so low. In FY25 and FY24, the CAD stood at 0.6% and 0.7% of GDP respectively. If the first quarter is any indication, then FY26 does promise to be better than that. However, we have to factor in trade disruptions due to the 50% penal tariffs imposed by the US.

The steep 50% tariffs are going to impact nearly $50 Billion worth of Indian exports to the US. In FY25 and FY24, the CAD figure had surprised the street on the downside. However, FY26 poses a new set of challenges and a new set of supply chain constraints. It remains to be seen if India’s closer equations with China make any substantial difference to the CAD number for FY26. For now, this data may help the Indian Rupee take support!