India's current account gap widens to $4.2 billion in Q1

India's current account deficit rose to $4.2 billion, or 0.5 percent of GDP, in April-June 2026, the Reserve Bank of India said on 1 September. A year earlier the gap was $3.4 billion, or 0.4 percent of GDP. The increase is modest as a share of output. The composition underneath it is not.

The merchandise trade deficit jumped to $86.1 billion from $68.9 billion. That $17.2 billion widening is the core of the story. Oil and other imported commodities cost more after the latest round of U.S.-Iran strikes and the disruption in the Strait of Hormuz. Goods exports did not rise enough to match.

Invisibles offset most of the damage. Net services receipts increased to $51.6 billion from $47.9 billion. The RBI named computer services, other business services and transport as the categories that grew. Personal transfers, mainly remittances from Indians working abroad, rose to $42.9 billion from $33.2 billion. Net outgo on the primary income account, mostly investment-income payments to foreign owners, fell to $10.5 billion from $13.3 billion.

The financial account turned the quarter from a manageable current-account gap into a reserve drain. Foreign portfolio investors pulled out $9.6 billion, against an inflow of $1.6 billion a year earlier. Net foreign direct investment still came in at $6.1 billion, up from $5.2 billion. Non-resident deposits added $2.8 billion. External commercial borrowings added $3.3 billion. The capital account as a whole showed a net outflow of $3.9 billion, compared with an inflow of $7.9 billion in the year-ago quarter.

Foreign-exchange reserves fell $8.1 billion on a balance-of-payments basis. A year earlier they had risen $4.5 billion. The overall BoP was in deficit by $8.1 billion after a surplus of $4.5 billion. Those reserve figures are the ones that feed into the rupee and into how much room the RBI has if oil stays near the levels that hit Indian equities on 2 September.

A current-account deficit of half a percent of GDP is not, on its own, a crisis number. India has run larger gaps in years when growth was slower. The risk sits in the mix: a war-linked goods deficit, portfolio money leaving, and reserves falling in the same quarter. Services and remittances are doing the work that merchandise trade is not. They are also the items most exposed to a global slowdown in technology spending and to weaker Gulf hiring.

The RBI released the data as preliminary. Revisions are normal. What will not be revised away is the $86.1 billion goods hole. If Brent stays elevated into the second quarter, the CAD will widen again unless services and remittances keep setting new highs. That is the arithmetic the bond market will use, and it is already visible in the rupee's open near 94.92 per dollar on Wednesday morning.