India’s external sector demonstrated remarkable resilience in the final quarter of financial year 2025-26, posting a surprise current account surplus despite an increasingly uncertain global environment marked by geopolitical tensions, rising crude oil prices and capital market volatility. Fresh data released by the Reserve Bank of India (RBI) showed that the country recorded a current account surplus of $7.1 billion, equivalent to 0.7 per cent of Gross Domestic Product (GDP), during the January-March quarter of FY26.
The performance marks a sharp turnaround from the current account deficit of $13.2 billion, or 1.3 per cent of GDP, recorded in the preceding October-December quarter. While the surplus was lower than the $13.7 billion surplus reported during the same quarter of FY25, it nevertheless exceeded market expectations at a time when economists had anticipated continued pressure on India’s external balances due to higher import costs and global uncertainties.
The latest figures shows the growing importance of India’s services sector and overseas Indian workforce in stabilising the country’s external accounts. As merchandise trade deficits widened and foreign investors pulled money out of domestic markets, robust earnings from services exports and strong remittance inflows acted as critical buffers, preventing a deterioration in the current account position.
A major contributor to the surplus was the strong performance of India’s services sector, which has increasingly become a pillar of the country’s external earnings. According to RBI data, net services receipts rose to $60.4 billion during the March quarter, compared with $53.3 billion during the corresponding period a year earlier. The increase was driven primarily by continued growth in computer services, information technology exports, professional services and other business services that remain in strong demand across global markets.
The expansion of services exports helped compensate for a significant deterioration in India’s merchandise trade balance. During the January-March quarter, the country’s merchandise trade deficit widened to $83.4 billion, compared with $59.3 billion during the same period of the previous financial year. The widening gap reflects the impact of rising import costs, particularly energy imports, as well as continued uncertainty in global trade flows.
Another key pillar supporting India’s external sector was the surge in remittances sent home by Indians working abroad. RBI data showed that private transfer receipts, which largely comprise remittances, increased to $43.5 billion during the March quarter, up sharply from $33.9 billion a year earlier.
The increase in remittance inflows assumes particular significance given concerns that escalating tensions in West Asia could adversely affect income flows from millions of Indians employed across the Gulf region. Instead, remittances remained robust and continued to provide substantial support to India’s balance of payments and foreign exchange position.
The strength of services exports and remittances also helped India return to a Balance of Payments (BoP) surplus of $7.2 billion during the March quarter, reversing weakness witnessed earlier in the fiscal year. However, for the full year, the country still recorded a BoP deficit of $23.6 billion, reflecting pressures that emerged during previous quarters.
Economists believe part of the quarterly improvement was aided by proactive interventions from the Reserve Bank of India aimed at maintaining liquidity and external sector stability. During the January-March period, the central bank conducted two tranches of dollar-rupee buy-sell swap operations worth $10 billion each, measures designed to support foreign exchange liquidity and smooth market functioning.
Notably, the improvement in the external account came despite significant foreign investor withdrawals from Indian financial markets. Net foreign portfolio investment outflows reached $12 billion during the quarter, substantially higher than the $5.9 billion recorded during the same period last year. Such outflows typically place pressure on the rupee and foreign exchange reserves, making the current account surplus even more significant.
For the full financial year 2025-26, India’s current account deficit stood at $25.2 billion, equivalent to 0.6 per cent of GDP. The figure remained broadly in line with the previous year’s deficit and was lower than many market forecasts. The relatively modest deficit highlights the underlying strength of India’s external sector at a time when many emerging economies continue to grapple with trade disruptions, slowing global growth and financial market volatility.
The RBI’s data also suggests that India’s external financing position remains manageable. Stable earnings from services exports, strong remittance inflows and adequate foreign exchange reserves have enabled the economy to absorb external shocks more effectively than in previous years.
Nevertheless, economists caution that challenges remain on the horizon. Rising crude oil prices continue to pose one of the biggest risks to India’s external accounts because the country imports more than 85 per cent of its crude oil requirements. The escalation of tensions in West Asia has already triggered concerns over higher energy costs, which could widen the import bill and increase pressure on the current account deficit in FY27.
Continued foreign portfolio outflows could also weigh on the rupee and create challenges for the broader balance of payments position. Any prolonged disruption in global supply chains or escalation in geopolitical conflicts may further complicate the external environment.
Despite these risks, the March-quarter data indicates that India entered FY27 from a position of relative strength. The country’s growing services economy, resilient remittance inflows and prudent macroeconomic management have created important buffers against global shocks. As uncertainty continues to cloud the global economy, the latest figures reinforce the view that India’s external sector remains one of the key pillars supporting overall economic stability and growth.
