India Balance of Payments: CAD Widens to $7.4B as Reserve Surplus Expands

RBI data shows India’s current account deficit expanded due to primary income outflows, but strong banking capital inflows drove an overall $8.8 billion BoP surplus for September 2026.

India’s balance of payments (BoP) recorded an overall surplus of $8.8 billion in September 2026, supported by robust capital inflows even as the country’s current account deficit widened to $7.4 billion, according to preliminary data released by the Reserve Bank of India (RBI). The expansion in the current account deficit from $5.2 billion in September 2025 was primarily driven by higher net investment income payments abroad, despite an improvement in the merchandise trade balance and steady services exports.

The monthly data highlights a contrasting picture across external accounts. While foreign portfolio investors pulled money out of Indian financial assets during the month, large banking capital inflows helped India accumulate foreign exchange reserves. For the first half of the financial year (April to September 2026), India’s cumulative current account deficit rose to $25.8 billion compared to $18.0 billion in the corresponding period of the previous year. However, the cumulative overall BoP balance swung into a surplus of $66.8 billion, compared to a deficit of $6.4 billion in H1 FY26, signaling strong foreign exchange reserve accumulation over the six-month period.

Breakdown of Current Account Details

The merchandise trade gap narrowed in September 2026 to $30.0 billion from $33.4 billion a year earlier. Indian merchandise exports rose to $45.3 billion, up from $36.4 billion in September 2025, while merchandise imports increased to $75.3 billion from $69.8 billion. Over the April–September 2026 period, cumulative merchandise exports stood at $265.3 billion against imports of $441.4 billion, resulting in a net trade deficit of $176.1 billion.

India’s net services receipts expanded to $19.2 billion in September 2026, up from $18.8 billion in the year-ago period. Services exports reached $39.3 billion against imports of $20.1 billion. Net transfers, which primarily comprise remittances from overseas workers, remained resilient at $10.9 billion for the month, though slightly lower than $11.5 billion recorded in September 2025. Cumulative net transfers for April–September 2026 reached $77.7 billion.

The primary driver of the widened current account deficit was net income outflows, which rose sharply to $7.6 billion in September 2026 compared to $2.2 billion in September 2025. Net income captures payments of interest, dividends, and earnings disbursed to foreign capital holders relative to receipts on Indian assets abroad.

Banking Capital Surges as Foreign Outflows Hit $6.7 Billion

India’s capital account registered a strong net inflow of $16.2 billion in September 2026, a turnaround from a net outflow of $0.4 billion in September 2025. The capital account surge was driven predominantly by net banking capital inflows of $22.2 billion, of which non-resident Indian (NRI) deposits accounted for $3.7 billion. Over the first six months of the financial year, total net banking capital inflows reached $125.2 billion.

In contrast, net foreign portfolio investment (FPI) recorded an outflow of $6.7 billion in September 2026, compared to an outflow of $0.6 billion a year earlier. FPI flows into India saw net selling of $6.5 billion during the month. Net foreign direct investment (FDI) also recorded net outflows of $4.9 billion in September 2026, as gross FDI into India stood at a negative $0.5 billion while outward FDI by Indian entities totaled $4.4 billion. External commercial borrowings (ECBs) brought in net inflows of $4.5 billion for the month.

Key Numbers at a Glance

• Current Account Deficit (Sept 2026): $7.4 billion (up from $5.2 billion in Sept 2025).
• Merchandise Trade Deficit (Sept 2026): $30.0 billion (exports $45.3B, imports $75.3B).
• Services Surplus (Sept 2026): $19.2 billion (exports $39.3B, imports $20.1B).
• Net Capital Account Inflow (Sept 2026): $16.2 billion (led by $22.2B in banking capital).
• Foreign Portfolio Investment (Sept 2026): Net outflow of $6.7 billion ($6.5B foreign outflow from India).
• Overall Balance of Payments (Sept 2026): Surplus of $8.8 billion (reserve addition).
• H1 FY27 Overall BoP Surplus: $66.8 billion reserve accretion (April–September 2026).

What this means for investors

For Indian equity and debt investors, the balance of payments report offers reassurance on macroeconomic stability despite foreign portfolio withdrawals. While the widening current account deficit reflects rising income outflows to foreign investors, the substantial net surplus on the overall balance of payments indicates that foreign exchange reserves continue to expand. An overall BoP surplus of $8.8 billion in September—and $66.8 billion across the first half of the financial year—provides the Reserve Bank of India with ample firepower to manage exchange rate volatility.

The reliance on banking capital inflows to offset foreign portfolio outflows and net FDI outflows warrants close attention. Strong NRI deposit inflows highlight sustained confidence among overseas Indians, but portfolio flows remain sensitive to global interest rate differentials and risk sentiment. A healthy reserve cushion limits downside risks for the Indian rupee, reducing the threat of imported inflation and supporting domestic equities.

Investors should monitor future trade trends and FPI movements in upcoming quarters. If global demand keeps services exports strong and merchandise imports remain manageable, the current account deficit should stay within comfortable bounds, keeping systemic liquidity and sovereign debt dynamics stable.

Frequently asked questions

What is the main reason for the increase in India’s current account deficit? The current account deficit widened to $7.4 billion in September 2026 mainly due to a sharp rise in net primary income outflows to $7.6 billion, offsetting improvements in the merchandise trade balance.

How did India achieve an overall BoP surplus despite foreign portfolio outflows? Strong banking capital inflows of $22.2 billion, including $3.7 billion in NRI deposits, outweighed FPI outflows of $6.7 billion and net FDI outflows, pushing the overall BoP into an $8.8 billion surplus.

What does a balance of payments surplus mean for the Indian rupee? An overall balance of payments surplus means more foreign currency entered the economy than exited, leading to foreign exchange reserve additions that help the RBI cushion the rupee against exchange rate volatility.

This article is for information only and is not investment advice. Do your own research or consult a licensed adviser before investing.

Based on information published by Reserve Bank of India (RBI). Source: Reserve Bank of India (RBI). Spotted an error? corrections@moneypuran.com