Services Exports, Remittances Seen Keeping India’s CAD Sustainable in 2025-26: RBI

Robust services exports and healthy inward remittance receipts are expected to keep India’s current account deficit for the current financial year moderate and sustainable, the Reserve Bank of India Governor Sanjay Malhotra said while announcing the monetary policy review. 

Despite heightened global uncertainty, the central bank underlined that India’s external position remains resilient and well cushioned against volatility.

Global trade conditions have remained relatively firm even amid geopolitical tensions and shifting supply chains. Against this backdrop, India’s merchandise exports rose 1.9% year-on-year in the October-December, supported by ongoing trade diversification efforts. However, merchandise imports expanded at a faster pace of 7.9%, reflecting strong domestic demand as well as higher imports of energy and capital goods. As a result, the merchandise trade deficit widened to $91.5 billion in October-December, compared with $88.0 billion in the previous quarter and $78.7 billion a year earlier.

The drag from the wider goods trade gap has been offset by a strong performance in invisibles. Services exports stood out as a key stabiliser, rising 7.5% year-on-year to $111.2 billion during the quarter. Services imports grew at a more modest 2.7% to $53.7 billion, lifting net services exports by 12.3% year-on-year to $57.5 billion. Inward remittances, another critical source of foreign exchange, increased 10.7% year-on-year to $39.0 billion in  July–September. Together, these flows are expected to anchor the CAD at manageable levels.

Malhotra also highlighted India’s proactive push on trade diplomacy. Trade agreements with the UK and Oman have been signed, the pact with the European Free Trade Association came into force from October 1, while deals with New Zealand and the European Union have been concluded. A trade agreement with the US has also been announced. These initiatives are expected to boost trade and investment flows, diversify export markets and integrate India more deeply into global value chains over time.

On the financing side, foreign direct investment inflows remained robust. Gross FDI rose 16.1% year-on-year to $64.7 billion during April–November 2025-26, while net FDI inflows improved to $5.6 billion as repatriations declined, despite higher outward investments. 

“India continues to remain an attractive FDI destination for greenfield project,” Malhotra said. 

So far in 2025-26, greenfield project announcements to India stood at $56 billion, led by global majors such as Amazon, Microsoft and Google.

Portfolio flows, however, have been volatile. Foreign portfolio investors recorded net equity outflows of $7.5 billion during April–February 3, partly offset by $1.7 billion of net inflows into debt. These outflows contributed to a sharp depreciation of the rupee, which has weakened about 5.1% so far in 2025-26. Even so, India’s foreign exchange reserves stood at a comfortable US$ 723.8 billion as of January 30, providing more than 11 months of import cover.

Overall, the RBI reiterated confidence that India will meet its external financing needs comfortably, with buffers strong enough to navigate near-term pressures while sustaining medium-term external stability.