India posts $2 billion current account deficit in May as trade gap widens

India recorded a current account deficit (CAD) of $2 billion in May 2026, compared with a surplus of $0.7 billion in the same month last year, as a sharp increase in merchandise imports outpaced export growth, according to preliminary balance of payments data released by the Reserve Bank of India (RBI).

The country's merchandise trade deficit widened to $27.9 billion in May 2026 from $22.6 billion a year earlier. Merchandise exports rose to $46.1 billion from $38.7 billion, while imports surged to $74 billion from $61.3 billion during the period.

Net services exports remained broadly stable at $15.7 billion in May 2026, compared with $15.8 billion a year ago. Services exports stood at $33.4 billion, while services imports increased to $17.6 billion.


Net transfers, a key component supported by remittances, increased to $13.6 billion in May from $10.5 billion a year earlier, helping cushion the impact of the wider merchandise trade gap. Net income outflows stood at $3.4 billion.

For the first two months of FY27 (April-May 2026), India reported a current account surplus of $2.8 billion, reversing a deficit of $4.1 billion recorded in the corresponding period of the previous year. The improvement was driven by higher exports and stronger net transfers.

On the capital account, India recorded a net outflow of $2.4 billion in May 2026, compared with a net inflow of $3.7 billion in May 2025. Foreign portfolio investment (FPI) witnessed a net outflow of $4.7 billion during the month, while net foreign direct investment (FDI) was marginally negative at $0.1 billion.

Net FDI inflows into India stood at $2.4 billion in May, while overseas investments by Indian entities amounted to an equivalent $2.4 billion.

External commercial borrowings (ECBs) recorded a modest net inflow of $0.1 billion, while short-term credit to India registered a net inflow of $3.2 billion. Banking capital showed a net outflow of $1.1 billion, including net NRI deposit inflows of $0.6 billion.

As a result of the current account deficit and capital outflows, India's overall balance of payments posted a deficit of $4.4 billion in May 2026, compared with a surplus of $4.4 billion in May 2025. This led to a corresponding drawdown in foreign exchange reserves during the month.