India’s Current Account Deficit Decreases to $5.2 Billion in August, According to RBI Data
India’s overall balance of payments (BoP) recorded a surplus of $45.4 billion in August 2026, a significant turnaround from a deficit of $5.6 billion in the same month last year. This improvement is attributed to a sharp rise in foreign currency inflows, particularly from non-resident Indian (NRI) deposits, as reported by the Reserve Bank of India (RBI). The BoP surplus also increased from $20.8 billion in July 2026, indicating a stronger external financial position despite a continuing current account deficit.
Banking capital inflows played a crucial role in this positive shift, reaching $64.7 billion in August, compared to an outflow of $4.7 billion in August 2025. Notably, net NRI deposits surged to $83 billion during the month, a stark increase from just $1 billion in the same period last year. This rise in foreign currency inflows follows measures introduced by the RBI earlier this year aimed at attracting overseas funds and bolstering India’s external position.
Current account deficit narrows in August
India’s current account deficit narrowed to $5.2 billion in August, down from $6.1 billion a year earlier, despite a substantial merchandise trade deficit. The merchandise trade deficit was recorded at $26.6 billion for the month, slightly lower than the $27.6 billion reported in August 2025. The services sector continued to provide support, with the services surplus increasing to $16.5 billion from $15.6 billion in the same month last year.
Foreign direct investment (FDI) also showed improvement, with net inflows of $3.3 billion in August, compared to a net outflow of $0.1 billion a year earlier. Additionally, foreign portfolio investment (FPI) registered net inflows of $1.7 billion during the month, reversing the net outflows of $2.6 billion recorded in August 2025. However, cumulative figures for April-August indicate ongoing pressure on the current account, with the deficit widening to $18.3 billion from $12.8 billion in the same period last year. Despite this, India achieved an overall BoP surplus of $58 billion during April-August 2026, compared to a deficit of $0.8 billion a year earlier.
RBI clarifies foreign exchange reserve requirements
The RBI has clarified that its new Foreign Exchange Risk Reserve (FERR) requirements apply only to specific foreign exchange derivative contracts involving the purchase of foreign currency against the rupee. In a set of frequently asked questions released on Thursday, the central bank specified that the reserve requirement does not apply to contracts where users sell foreign currency against the domestic currency.
The RBI announced these regulatory measures, including the introduction of FERR, on October 10, amid significant depreciation of the rupee. Since then, the domestic currency has strengthened against the US dollar. FERR is a reserve that authorized dealers must maintain with the RBI for qualifying rupee-based foreign exchange derivative contracts. The requirement applies to specified contracts undertaken by authorized dealers with users, as well as contracts used to hedge currency risks arising from their own assets and liabilities.
The central bank stated that the requirement applies to specified derivative contracts between authorized dealers and users with a notional value exceeding the equivalent of $2 million. Contracts with a notional value of $2 million or less are exempt from this requirement. The RBI defines a user as any person resident in India or outside the country, excluding authorized dealers. The central bank also warned authorized dealers against attempts to structure derivative transactions to circumvent these provisions.
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