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2 September 2026

India's current account deficit in Q1 FY27

The Current Account Deficit is a core macroeconomic indicator frequently tested in UPSC Mains under the Indian Economy syllabus, as it reflects the country's external sector health and balance of payments position.

1 min read Day 6 of 6 2 questions 2 prelims

Notes

  • India's Current Account Deficit (CAD) widened to $4.2 billion (0.5% of GDP) in Q1 FY27, up from $3.4 billion (0.4% of GDP) in Q1 FY26.
  • Merchandise trade gap increased significantly to $86.1 billion from $68.9 billion in the year-ago period.
  • Net services receipts rose to $51.6 billion from $47.9 billion, driven by growth in computer, business, and transportation services.
  • Secondary income account (remittances) increased to $42.9 billion from $33.2 billion.
  • Primary income account net outgo declined to $10.5 billion from $13.3 billion due to lower investment income payments.
  • Financial account: Net FDI inflows rose to $6.1 billion; however, FPI recorded a net outflow of $9.6 billion.
  • Net inflows into non-resident deposits ($2.8 billion) and External Commercial Borrowings ($3.3 billion) both moderated compared to Q1 FY26.
  • Foreign exchange reserves declined by $8.1 billion on a BoP basis in Q1 FY27.

Part of a longer story

This is day 6 of 6 in India's monthly trade deficit analysis, which has been running since 14 July 2026. Reading it whole is usually worth more than reading today alone — the exam asks how something developed.

Questions

  1. Analyze the factors contributing to the widening of India's Current Account Deficit in the first quarter of FY27 and discuss the role of services exports and remittances in mitigating external sector pressures. 150 words
    Attempt this — 150 words in 8 min
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  2. The volatility in capital flows, particularly the shift from FPI inflows to outflows, poses significant challenges for macroeconomic stability. Discuss the implications of these financial account trends on India's foreign exchange reserves and overall Balance of Payments management. 250 words
    Attempt this — 250 words in 11 min
    0 / 250 words 11:00

Prelims

  1. Which of the following components contributed to the widening of India's Current Account Deficit in Q1 FY27 according to RBI data?

  2. In the context of India's Balance of Payments for Q1 FY27, which of the following statements is correct regarding financial account flows?

Syllabus

Topics

Sources

250words.in · https://250words.in/daily/2026-09-02/india-s-current-account-deficit-in-q1-fy27