India's Trade Deficit Surges as Services Boom Mitigates Headwinds in Q4 BoP

India's Trade Deficit Surges as Services Boom Mitigates Headwinds in Q4 BoP​

Preliminary data released by the Reserve Bank of India (RBI) paints a mixed picture of India’s balance of payments (BoP) for the fourth quarter (Q4) of 2025-26 (January-March). While services exports demonstrate strong growth, bolstering net service receipts, merchandise trade deficit widened, contributing to a slowdown in overall current account performance.

Current Account Performance and Global Trends​

In Q4:2025-26, India recorded a current account surplus of US$ 7.1 billion, which stood at 0.7 per cent of GDP. This figure contrasts with the surplus registered in Q4:2024-25 at US$ 13.7 billion (1.4 per cent of GDP).

The goods trade balance saw a decline, with the merchandise trade deficit reaching US$ 83.4 billion in Q4:2025-26. This represented an increase from the US$ 59.3 billion deficit recorded in Q4:2024-25.

Services exports, however, showed resilience. Net services receipts increased to US$ 60.4 billion during the quarter compared to US$ 53.3 billion a year earlier. This positive trend was attributed to robust growth across key areas such as computer services and other business services.

Shifts in Income and Capital Flows​

Net outflows on the primary income account, which principally reflect investment income payments, decreased to US$ 11.1 billion in Q4:2025-26 from US$ 11.9 billion in the previous year. This suggests a slight moderation in repatriation flows relative to the prior period.

Conversely, personal transfer receipts under the secondary income account experienced substantial growth. Remittances by Indians employed overseas rose significantly, reaching US$ 43.5 billion in Q4:2025-26, up from US$ 33.9 billion in Q4:2024-25.

The financial account displayed varied flows during the period. Foreign direct investment (FDI) recorded a net inflow of US$ 4.2 billion in Q4:2025-26, surpassing the modest inflow of US$ 0.4 billion seen in Q4:2024-25.

Analysis of Portfolio and Investment Movements​

The movements in portfolio investment showed caution amidst other positive developments. Foreign portfolio investment (FPI) registered a net outflow of US$ 12.0 billion in Q4:2025-26. This is an increase compared to the prior period's outflow of US$ 5.9 billion, indicating intensified capital outflows in this segment.

Non-resident deposits (NRI deposits), however, remained a steady positive inflow, recording US$ 3.3 billion in Q4:2025-26 against US$ 2.8 billion in the prior quarter. Net inflows under external commercial borrowings (ECBs) to India stood at US$ 3.6 billion, down from US$ 7.5 billion recorded in Q4:2024-25.

Annual Trends and Foreign Exchange Reserves​

Looking across the entire fiscal year of 2025-26, India's current account deficit was reported at US$ 25.2 billion (0.6 per cent of GDP). This is an increase compared to the US$ 22.9 billion deficit recorded in 2024-25.

Overall, net invisible receipts—a combination of services income and personal transfers—reached US$ 312.0 billion in 2025-26. This marked a significant rise from US$ 264.0 billion a year ago, driven primarily by the strengthened service sector performance and improved remittances.

In terms of reserves, foreign exchange reserves saw an increase of US$ 7.2 billion (on a BoP basis) in Q4:2025-26. This contrasts with an accretion of US$ 8.8 billion registered during Q4:2024-25.