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Q3 FY26 BoP: Another quarter of deficit

04 Mar 2026

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KEY TAKEAWAYS 

  1. India’s Net BoP slipped into a deeper deficit of 2.4% of GDP (i.e., USD 24.4 bn) in Q3 FY26, compared to 1.2% of GDP (i.e., USD 10.9 bn) in Q2 FY26. 
  2. This was on account of a steep deterioration in capital account that slipped into a deficit even as CAD improved at the margin 
  3. India’s external sector has showcased resilience despite global geoeconomic headwinds led by US tariffs remaining at 50% level, up to the end of Q3 FY26.  
  4. Q4 FY26 so far has been a mixed bag. The quarter started on an optimistic note, with trade deals with EU and US being announced. However, with the US Supreme Court invalidating President Trump’s IEEPA-based tariffs, and the subsequent announcement of a uniform 10% tariff, India’s relative price advantage from the trade deal vs. its competitors stands diluted.
  5. Basis Q1-Q3 data and resilience in India’s exports especially services, we revise our FY26 current account forecast to -1.1% of GDP (USD -42 bn) from -1.3% (USD -52 bn) earlier. The forecast for BoP deficit now also stands adjusted to USD -35 bn from USD -14 bn earlier. 
  6. The recent intense escalation in Middle East tensions, warrants close monitoring.
  7. Net FDI inflows exhibited modest strength at the start of FY26, underscoring India’s domestic macroeconomic strengths.
  8. For FY26, forecasting trade, capital flows, and BoP is turning out to be extremely challenging. The imposition of dual tariffs on India will significantly drag exports to the US. Having said, the durability of this shock is still unclear as possibility of negotiations remains on the table. 
  9. If US revokes the penalty tariff of 25% imposed solely on India, then our FY26 forecast for current account deficit and BoP surplus of 0.8% of GDP and USD 10 bn should broadly hold. 


India’s Net Balance of Payments slipped into a deeper deficit of 2.4% of GDP (i.e., USD 24.4 bn) in Q3 FY26, compared to 1.2% of GDP (i.e., USD 10.9 bn) in Q2 FY26. 


  • This was on account of a steep deterioration in capital account that slipped into a deficit (from a surplus of 0.2% of GDP in Q2 FY26 to a deficit of 1.0% in Q3 FY26) even as current account deficit improved at the margin (from 1.5% of GDP in Q2 FY26 to 1.3% in Q3 FY26)

 

Key highlights: Current Account 


India’s current account deficit narrowed on a sequential basis to USD 13.2bn (1.3% of GDP) in Q3FY26 compared with a deficit of USD 14.1bn (1.5% of GDP) in the previous quarter. 

  • Merchandise trade deficit widened to USD 93.6 bn in Q3 FY26 from USD 89.1 bn in Q2 FY26. While exports rose marginally (2.5%QoQ), they were more than offset by a faster pace of increase in imports. 
  • Offsetting this positively, invisible receipts posted a strong upside to a record high of USD 80.4 bn in Q3 FY26 (vs. USD 75.0 bn in Q2), single-handedly driven by higher services exports.
    1. The upside in services momentum was strong in Q3 FY26 at USD 57.5 bn – i.e., a record high, up from USD 50.9 bn in Q2. Services exports continue to remain a structural strength for India’s Current Account dynamics. The post COVID years saw a rise in harnessing India’s inherent technological strength to unleash a boom in Global Capability Centres (GCCs), helping the services exports to diversify beyond traditional services, viz. software. 

 

Key highlights: Capital Account 

  • India’s capital account recorded a deficit of USD 10.0 bn in Q3 (i.e., -1.0% of GDP) compared with modest surplus of USD 2.1bn in the previous quarter (0.2% of GDP)
  • Foreign investment outflows stood at USD 3.8 bn in Q3, almost at par with USD 3.9 bn in the previous quarter, as both net FDI and net FPI recorded outflows.
  • FPI outflows were minimal, at USD -0.2 bn in Q3 FY26, while recovering from sizeable outflows to the tune of USD -5.8 bn in Q2 FY26, yet still reeling under the impact of US tariffs. 
  • FDI on the other hand, swung into a net outflow of -USD 3.7 bn compared to a net inflow of USD 1.9 bn in the previous quarter. 
  • Loan disbursements into India stood at USD 13.3 bn in Q3 FY26 compared to USD 4.5bn in the previous quarter. This was mainly driven by higher short-term credit at USD 11.4 bn (USD 4.0bn in Q2), attributable to higher imports during the quarter. 

 

Overall, balance of payments recorded a deficit of USD 24.4 bn in Q3 (i.e., at 2.4% of GDP) compared with a deficit of USD 10.9bn (i.e., 1.2% of GDP) in the previous quarter. At cumulative level, viz FYTD, overall BoP, during Apr-Dec 2025, stood at USD 30.8bn as against a deficit of USD 13.8 bn in same period last year. 

 

 

Outlook 


India’s external sector has showcased resilience despite global geoeconomic headwinds led by US tariffs remaining at 50% level, up to the end of Q3 FY26. India’s goods exports in fact rose sequentially in Q3 albeit marginally, underscoring diversification of exports to the Rest of the World. More importantly, services exports continue to remain robust amidst India’s booming market for GCCs (Global Capability Centers). 

 

In comparison, Q4 FY26 so far has been a mixed bag. The quarter started on an optimistic note, with trade deals with EU and US being announced in quick succession. However, with the US Supreme Court invalidating President Trump’s IEEPA-based US tariffs, and the subsequent announcement of a uniform 10% tariff across trading partners, India’s relative pricing advantage from the trade deal over its competitors has got diluted. Further, the recent intense escalation in Middle East tensions, warrants close monitoring. Price of Brent crude has jumped to a 19-month high of USD 81.5 pb (amidst concerns over supply disruption) while that of gold has scaled a fresh record high of USD 5376 poz (buoyed by safe haven demand). A key concern remains the potential disruption of oil supplies through the Strait of Hormuz, through which nearly 20% of the world’s crude oil passes.

 

Basis data for Q1-Q3 on the back of resilience of India’s exports especially led by services exports, we now revise our FY26 current account forecast to -1.1% of GDP (USD -42 bn) from -1.3% (USD -52 bn) earlier. The forecast for BoP deficit now also stands adjusted to USD -35 bn from USD -14 bn earlier. 


Table 1: Key items within India’s BoP


Note: Figures may not add up due to rounding off and/or past data revisions.



Chart 1: BoP in Q3 FY26 remained in deficit for the second consecutive quarter