India’s current account deficit (CAD) widened in the October–December quarter of FY26, reflecting persistent pressure from a larger merchandise trade gap despite resilient services exports and remittance inflows. Data released by the Reserve Bank of India indicate that the country’s external sector remains sensitive to global trade conditions, commodity prices, and capital movements.

The CAD stood at $13.2 billion, equivalent to 1.3% of GDP, compared with $11.3 billion or 1.1% of GDP in the same quarter a year earlier. Sequentially, the deficit also edged up from $12.3 billion in the preceding quarter, suggesting that external imbalances have not eased despite a moderation in domestic demand conditions.

The primary driver of the widening gap was a sharp increase in the merchandise trade deficit, which rose to $93.6 billion from $79.3 billion a year earlier. Export growth was dampened by global trade tensions, including U.S. tariffs that reached as high as 50% during the period, affecting demand for Indian goods. At the same time, import bills climbed due to elevated gold purchases and higher commodity prices, reflecting both investment demand and consumption trends.

Offsetting factors came from India’s strong services sector, which continues to act as a stabiliser for the external account. Net services receipts increased to $57.5 billion from $51.2 billion a year earlier, supported by IT services, business process outsourcing, and digital exports. Similarly, private transfer receipts primarily remittances from Indians working abroad rose to $36.9 billion from $31.5 billion, highlighting the sustained importance of diaspora income flows to India’s external stability.

Despite the wider current account gap, the balance of payments (BoP) deficit narrowed to $24.4 billion from $37.7 billion a year earlier, indicating some relief from the capital account side. Easing capital outflows helped cushion the external position, though analysts note that portfolio flows remain volatile amid global monetary tightening and geopolitical uncertainty.

Economists caution that future movements in oil prices will be crucial. Rising tensions in the Middle East have already pushed crude prices higher, raising concerns about India’s import bill given its heavy reliance on energy imports. According to Gaura Sen Gupta, Chief Economist at IDFC First Bank, the impact on the current account will depend on whether elevated oil prices persist over an extended period. She estimates that crude prices sustained at around $80 per barrel for a year could push the CAD toward 2% of GDP, a level still manageable but potentially concerning if combined with capital outflows.

Economists caution that future movements in oil prices will be crucial. Rising tensions in the Middle East have already pushed crude prices higher, raising concerns about India’s import bill given its heavy reliance on energy imports. According to Gaura Sen Gupta, Chief Economist at IDFC First Bank, the impact on the current account will depend on whether elevated oil prices persist over an extended period. She estimates that crude prices sustained at around $80 per barrel for a year could push the CAD toward 2% of GDP, a level still manageable but potentially concerning if combined with capital outflows.

Currency pressures also remain a key risk. The Indian rupee continues to face strain from capital account dynamics rather than trade flows alone. However, near-term relief may come from central bank actions. The RBI has conducted approximately $20 billion in dollar–rupee buy-sell swaps, a liquidity management tool that injects rupees into the banking system while temporarily boosting foreign exchange reserves. These swaps, designed to offset liquidity drained by earlier dollar sales used to defend the rupee, could help improve the balance of payments in the coming quarter, although the effect is temporary until the swaps mature.

From a policy perspective, the data reinforce the RBI’s cautious stance on external vulnerability. While the CAD remains within historically comfortable levels, the composition of the deficit driven by imports rather than structural export weakness signals exposure to commodity cycles and geopolitical disruptions.

For businesses and investors, the implications are mixed. Export-oriented sectors may continue to face headwinds from global protectionism and weak external demand, while import-dependent industries could see cost pressures if commodity prices remain elevated. The resilience of services exports and remittances, however, provides a buffer that distinguishes India from many emerging markets with more fragile external accounts.