India’s external sector defies deadwinds as remittances, services exports drive Q4 surplus – Firstpost

India’s external sector showed unexpected strength in the final quarter of fiscal year 2025-26, with robust services exports and a surge in remittances helping the country post a current account surplus despite a widening merchandise trade deficit and foreign portfolio outflows.

Data released by the Reserve Bank of India (RBI) showed the current account surplus stood at $7.1 billion, equivalent to 0.7 per cent of gross domestic product (GDP), in the January-March quarter. The reading marked a sharp turnaround from a 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, or 1.4 per cent of GDP, reported in the same period a year ago, it came as a surprise to economists who had expected India to remain in deficit amid mounting concerns over higher energy costs and geopolitical tensions in West Asia.

The stronger-than-expected performance underscores the growing role of services exports and overseas remittances in cushioning India’s external accounts against volatility in global trade and capital flows.

Services exports provide crucial support

According to the RBI, net services receipts rose to $60.4 billion during the March quarter from $53.3 billion a year earlier. The central bank attributed the increase primarily to growth in major export categories, including computer services and other business services.

The expansion in services earnings helped offset a sharp deterioration in India’s merchandise trade balance. The country’s trade deficit widened to $83.4 billion in the quarter, up from $59.3 billion in the corresponding period of the previous year.

Remittances exceed expectations

Another major contributor to the current account surplus was a strong increase in private transfer receipts, largely comprising remittances from Indians working overseas.

These inflows rose to $43.5 billion in the January-March quarter, compared with $33.9 billion a year earlier.

The jump in remittances helped ease concerns that the conflict in West Asia could adversely affect income flows from Indian workers employed in the region.

Balance of payments returns to surplus

India also reported a balance of payments (BoP) surplus of $7.2 billion in the March quarter, reversing weakness seen earlier in the fiscal year.

For the full year, however, the country recorded a BoP deficit of $23.6 billion.

Analysts attributed the quarterly improvement partly to RBI actions aimed at supporting liquidity and external stability. During the January-March period, the central bank conducted two tranches of dollar-rupee buy-sell swap operations worth $10 billion each.

The improvement came even as foreign portfolio investors pulled money out of Indian markets. Net portfolio outflows stood at $12 billion during the quarter, significantly higher than the $5.9 billion recorded a year earlier.

FY26 deficit remains contained

For the full fiscal year, India’s current account deficit stood at $25.2 billion, or 0.6 per cent of GDP, broadly in line with the previous year’s level and below market expectations.

The lower-than-anticipated deficit reflects the resilience of India’s external sector despite persistent global uncertainty, slowing trade growth and episodes of capital market volatility.

The RBI’s data also suggest that India’s external financing position remained manageable, supported by stable inflows from services exports and remittances.

Oil prices remain a key risk

Despite the strong finish to FY26, economists cautioned that India’s external accounts could come under pressure in the current financial year as higher crude oil prices increase the import bill.

The escalation of tensions in West Asia has already pushed up global energy prices, raising concerns about a wider current account deficit in FY27.

At the same time, sustained foreign investor outflows could add pressure on the rupee and the broader balance of payments position.

Still, the March-quarter figures indicate that India’s external sector entered FY27 from a position of relative strength, with services exports and remittance inflows continuing to provide a critical buffer against emerging global risks.

With inputs from agencies.