Current account deficit narrows to $5.2 billion in August; BoP surplus hits $45.4 billion

India's current account deficit narrowed to $5.2 billion in August 2026, from $6.1 billion in August 2025, while the overall balance of payments swung to a surplus of $45.4 billion, according to monthly data the Reserve Bank of India released on Thursday, October 15, 2026. The surplus was driven by a record inflow of deposits from non-resident Indians (NRIs). The cumulative picture for the first five months of the financial year is less comfortable: the current account deficit for April to August widened to $18.3 billion.

The current account measures what India earns from and pays to the rest of the world for goods, services, income and transfers. A deficit has to be paid for with money coming in through the capital account, such as foreign investment, loans and deposits. When those inflows exceed the deficit, the balance of payments is in surplus and the RBI can add to its foreign exchange reserves. When they fall short, reserves are drawn down and the rupee tends to weaken.

August shows both halves of that equation moving in India's favour, but for different reasons. On the current account side, the improvement was modest: a slightly smaller goods deficit and a stronger services surplus, which comes mainly from software and business services exports. On the capital side, the change was dramatic. The jump in NRI deposits to $83 billion in a single month is far beyond normal levels, and it accounts for almost all of the surplus.

That money came in response to a policy choice. In June 2026 the RBI opened a window allowing banks to swap fresh and renewed three- to five-year FCNR(B) deposits, which are foreign-currency fixed deposits held by non-residents, with the central bank. The stated purpose was to attract foreign currency and ease pressure on the rupee. Reports linking the August surge to the scheme note that the window closed on August 31, so the August figure is very likely a one-time peak rather than a new normal.

Investors and businesses should therefore read the surplus carefully. It gives the RBI a much larger cushion of reserves at a time when the rupee has been under strain, trading around 95 to the dollar this month. But the money is in the form of deposits that will eventually mature and be repaid, and the underlying trade gap has been getting wider, not narrower, over the year so far.

Short-term: The surplus strengthens the RBI's hand in managing the rupee. A larger stock of reserves lets the central bank sell dollars to smooth sharp falls, which helps importers, companies with foreign-currency loans and households paying for overseas education or travel. A steadier currency also helps contain the cost of imported goods.

Long-term: The trend in the current account matters more than one month's capital inflow. The five-month deficit of $18.3 billion, against $12.8 billion a year earlier, reflects a merchandise trade gap that has widened to $146 billion. Unless exports keep growing faster than imports, India will need steady long-term inflows, such as foreign direct investment, rather than short bursts of deposits to fund the gap. The FCNR deposits raised this year will also have to be repaid in foreign currency when they mature three to five years from now.

Who is affected: Exporters and importers watching the rupee, banks that raised the deposits and now hold them, NRIs who placed money in India at attractive terms, and households and firms exposed to imported inflation through fuel and other goods.

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