Economic Outlook & Macro Trends
India witnessed a modest current account deficit (CAD) of $4.2 billion in Q1 FY2027 (0.5% of GDP), despite the shocks engendered by the West Asia conflict including the surge in global commodity and crude oil prices. This is only slightly higher than the deficit of $3.4 billion in Q1 FY2026 (0.4% of GDP), as the sharp rise in merchandise trade deficit was offset by the healthy expansion in net invisible earnings. However, with this and capital outflows of $5.8 billion, the country reported a drawdown of reserves to the tune of $8.1 billion in Q1 FY2027.
ICRA expects the CAD to widen in Q2 and Q3 FY2027 from the Q1 levels, which would push up the full-year print to ~0.9% of GDP, up from 0.7% in FY2026. However, this would be comfortably financed, aided by the sizeable foreign currency non-resident bank (FCNR(B)) inflows, which should lead to an accretion to reserves in FY2027, after a gap of two years.
