New Delhi: India’s external sector ended fiscal 2026 on a stronger note with the current account swinging back into surplus in the fourth quarter, but the headline improvement concealed mounting pressures from trade and an increasingly uncertain global backdrop, says Crisil in its Macroeconomics-First Cut.
The country’s current account posted a surplus of $7.1 billion, equivalent to 0.7% of GDP, in the January-March quarter, reversing a $15.5 billion deficit in the preceding quarter. Seasonal factors typically favour a fourth-quarter surplus, but the latest reading was almost half the $13.7 billion recorded in the same period a year earlier as merchandise trade came under strain.
“Typically, fourth quarters tend to throw up a surplus. However, the surplus this time was around half the $13.7 billion (1.4% of GDP) recorded in the same period last fiscal because goods trade deficit surged to $83.4 billion (vs $59.3 billion in the corresponding period last fiscal) as imports spiked ($196.6 billion vs $175.8 billion) and exports slipped a bit ($113.1 billion vs $116.5 billion), with the latter also seeing some impact of the West Asia conflict,” notes the report.
A current account surplus occurs when a country’s total international financial inflows (from exports, foreign investments, and remittances) exceed its outflows (imports and foreign aid). It means the nation is a net lender to the rest of the world, exporting more value than it receives.
The figures mentioned in the Crisil report underline the diverging fortunes of India’s external trade. Strong domestic demand kept imports elevated, while geopolitical tensions and softer global trade weighed on exports, widening the merchandise trade gap and diluting the benefit of the seasonal current account recovery.
Services Offer Support
The bright spot remained India’s services sector, which continued to offset a significant part of the merchandise trade imbalance and reinforced its role as a structural strength of the economy.
A services trade surplus of $60.4 billion in the fourth quarter, up from $53.3 billion a year earlier, provided a crucial buffer against the widening goods deficit. On a full-year basis, the current account deficit stood at $25.2 billion, marginally higher than $22.9 billion in fiscal 2025, but stable at 0.6% of GDP.
“On a cumulative basis, CAD stood at $25.2 billion last fiscal ($22.9 billion in fiscal 2025), but as a percentage of GDP, it was stable at 0.6%. The widening goods trade deficit (8.0% of GDP vs 7.5% of GDP) was offset by a rise in the services trade surplus (5.1% of GDP vs 4.9% of GDP).”
The resilience of technology, financial and business services exports has helped insulate India’s external accounts from volatility in global goods trade. However, economists caution that sustaining this cushion will become increasingly important if global trade disruptions intensify.
Remittance Risks Persist
Beyond trade, remittance flows remain a critical pillar of India’s external finances, although shifting geopolitical dynamics could test their durability.
Secondary income, largely driven by overseas remittances, climbed to 3.4% of GDP in fiscal 2026 from 3.2% a year earlier, offering additional support to the current account. The concentration of these inflows, however, leaves India exposed to developments in one of the world's most volatile regions.
“Secondary income, largely comprising remittances, increased to 3.4% of GDP last fiscal from 3.2% in fiscal 2025 and will need monitoring given ~38% of it emanates in West Asia.”
The ongoing uncertainty in West Asia has already affected trade routes and export activity. Any prolonged disruption that spills over into labour markets or economic activity across the region could have implications for remittance inflows, adding another layer of risk to India’s external position.
Reserve Cushion Tested
India’s foreign exchange reserves received a sizeable boost from valuation gains during fiscal 2026, although the underlying balance of payments picture was less robust.
Valuation gains added $46.4 billion to reserves during the year, substantially higher than the $26.9 billion increase in fiscal 2025, offsetting a $23.6 billion decline on a balance of payments basis and resulting in a net rise of $22.8 billion in headline reserves.
“The valuation effect is expected to abate this fiscal year because of rising yields on US dollar and falling prices of gold. The move by the Monetary Policy Committee of the Reserve Bank of India (RBI) at its latest review meeting to attract foreign capital can provide some cushion here,” according to the report.
That suggests India’s reserve accumulation may face a tougher environment in the coming year as favourable valuation effects fade. Policymakers are likely to rely more heavily on capital inflows and the country’s underlying external competitiveness to maintain stability. For now, the current account remains manageable, but the widening trade gap, geopolitical risks and a potentially less supportive global financial environment mean India's external balance will require closer scrutiny in fiscal 2027.