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However, the impact of the wider trade deficit was partly offset by stronger earnings from services and higher remittance receipts.

Net services receipts rose to $51.6 billion during the quarter from $47.9 billion a year earlier. Services exports increased year-on-year across major segments, including computer services, other business services and transportation services, the RBI said.

Net outgo on the account, which largely reflects investment income payments, declined to $10.5 billion in Q1 2026-27 from $13.3 billion in the year-ago quarter, it said.

Meanwhile, personal transfer receipts — mainly remittances sent by Indians employed overseas — rose sharply to $42.9 billion from $33.2 billion. The increase in remittances continues to provide an important cushion to India’s external balance, helping offset part of the merchandise trade deficit.

On the financing side, foreign direct investment remained positive, with net FDI inflows rising to $6.1 billion in Q1 2026-27 from $5.2 billion in the same quarter last year. This points to continued investor interest in India’s long-term growth prospects.

Foreign portfolio investment recorded a net outflow of $9.6 billion during the quarter, compared with a net inflow of $1.6 billion in Q1 2025-26. The reversal highlights the greater volatility of portfolio capital compared with longer-term investment flows.

Non-resident deposits also recorded a net inflow, though these moderated to $2.8 billion from $3.6 billion a year earlier. Net inflows through external commercial borrowings stood at $3.3 billion, against $4.4 billion in Q1 2025-26, RBI says.

The changing composition of external flows was also reflected in India’s foreign exchange reserves. On a balance-of-payments basis, reserves declined by $8.1 billion in Q1 2026-27, compared with an accretion of $4.5 billion in the corresponding period last year.

Overall, the latest data suggest that while India’s external position remains relatively contained in relation to the size of the economy, the widening merchandise trade deficit and reversal in portfolio flows warrant close monitoring.