Balance of payments and CAD
The country's account with the rest of the world: what goes in it, why it balances and where it stands
Balance of payments data to April-June 2026; foreign exchange reserves as on 2 October 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room what 'CAD' stands for and whether a deficit is a problem in itself. Most people mix it up with the trade deficit or with the Government's fiscal deficit. This deck separates the three and shows RBI's latest numbers.
The balance of payments records payments between India and the rest of the world. Its two sides sum to zero.
One side is the current account. The other is the capital and financial account. A gap on one side is matched on the other.
Trainer notes
The balance of payments, or BoP, covers all residents: households, companies and the Government. RBI compiles it and publishes it every quarter, about two months after the quarter ends. 'CAD' is the current account deficit.
The current account, 2025-26 (US$ bn)
- −337
Goods
Net −337.3. Exports of goods minus imports: the merchandise trade deficit. Oil is a large part of imports.
- +217
Services
Net +216.6. Mainly software and other business services. India receives more than it pays.
- −48
Income
Net −48.2. 'Primary income': mainly interest, dividends and profits on investments. India pays out more.
- +144
Transfers
Net +143.6. 'Secondary income': transfers with nothing given in return, mainly remittances from Indians abroad.
Take-away: Added up, the current account deficit for 2025-26 was US$ 25.2 billion, or 0.6% of GDP.
Source: RBI press release on India's balance of payments for Q4 and the full year 2025-26, 8 Jun 2026 (preliminary data, net figures).
Trainer notes
The large figures are rounded; each card gives RBI's figure to one decimal. The four figures add to minus 25.3; RBI reports minus 25.2 because each line is rounded. A minus sign means India paid out more than it received on that line. Within goods, the deficit on petroleum, oil and lubricants was US$ 120.1 billion. Services, primary income and secondary income together are called 'invisibles': net receipts were US$ 312.0 billion.
The capital and financial account
Net flows in US$ billion. A plus sign means money came into India on that line.
| Line | What it is | 2025-26 | Apr-Jun 2026 |
|---|---|---|---|
| Direct investment (FDI) | Foreign companies buying or building businesses in India, less Indian companies doing the same abroad. | +6.9 | +6.1 |
| Portfolio investment (FPI) | Foreign investors buying and selling listed shares and bonds. | −16.4 | −9.6 |
| Other investment | Loans, NRI deposits, trade credit and similar flows. RBI's table calls this 'other investments'. | +35.7 | +7.7 |
| Reserve assets | RBI's foreign exchange reserves. A plus sign here means reserves were drawn down. | +23.6 | +8.1 |
Sources: RBI BoP press releases, 8 Jun and 1 Sep 2026 (preliminary); RBI Handbook, Table 126. Selected lines; they do not add to the total.
Trainer notes
RBI's Table 1 shows only these lines, so they do not add to the total (plus 25.4 for 2025-26, plus 2.6 for April-June 2026). The rest is mainly financial derivatives (other than reserves), a net outflow of US$ 24.0 billion in 2025-26, and the capital account, minus 0.5 (RBI Handbook, Table 126). April-June 2026: unshown balance minus 9.7 (our arithmetic). In both periods portfolio investors were net sellers and reserves fell on a BoP basis.
Why the two sides balance
THE SET-UP (ASSUMED)
One year of an imaginary country, in US$ billion.
It exports goods and services worth 500 and imports 560.
It receives a net 20 of income and transfers.
- Current account = 500 − 560 + 20 = −40. The country spent 40 more abroad than it earned.
- That 40 of foreign money has to come from somewhere. Foreign investors bring in a net 25 and lenders a net 10: 35 in all.
- The remaining 40 − 35 = 5 comes out of the central bank's reserves.
- Current account −40, capital inflows +35, reserves used +5. The total is zero.
Result: A current account deficit is matched by net capital inflows, a fall in reserves, or both.
Illustration with assumed figures. Not a forecast.
Trainer notes
This is an accounting identity, like a household whose spending above income must equal new borrowing plus savings used up. If inflows had been 50 instead of 35, reserves would have risen by 10. Real data also carry a small 'errors and omissions' line because not every payment is recorded perfectly.
India's two sides, in RBI's numbers
US$ billion, net, preliminary. In RBI's table a fall in reserves carries a plus sign.
| Line | 2025-26 | Apr-Jun 2026 |
|---|---|---|
| A. Current account | −25.2 | −4.2 |
| B. Capital and financial account, including reserves | +25.4 | +2.6 |
| Within B: reserves drawn down | +23.6 | +8.1 |
| C. Errors and omissions | −0.1 | +1.6 |
| A + B + C | 0.1 (rounding) | 0.0 |
Sources: RBI balance of payments press releases, Table 1, 8 Jun 2026 (2025-26) and 1 Sep 2026 (April-June 2026).
Trainer notes
Line by line this is the worked example's sum. In 2025-26 the deficit of US$ 25.2 billion was matched almost entirely by a US$ 23.6 billion fall in reserves on a BoP basis. The rest of line B netted US$ 1.8 billion: slide 4's inflows were offset by outflows on lines it omits, mainly financial derivatives. Do not draw a conclusion about the future from that.
Where things stand
RBI's latest published figures. Quarterly BoP data are preliminary and are often revised.
- CAD, APRIL-JUNE 2026
- 0.5%Of GDP, or US$ 4.2 billion. A year earlier: 0.4%, or US$ 3.4 billion.
- CAD, 2025-26
- 0.6%Of GDP, or US$ 25.2 billion. In 2024-25: 0.6%, or US$ 22.9 billion.
- FOREIGN EXCHANGE RESERVES
- $734.6bnOn 2 October 2026. Up US$ 43.5 billion since end-March 2026.
- IMPORT COVER (MONTHS)
- ~11Reserves cover 'around 11 months' of imports, said RBI on 7 October 2026.
Sources: RBI balance of payments press releases, 1 Sep 2026 and 8 Jun 2026; RBI Weekly Statistical Supplement, 9 Oct 2026; RBI Governor's Statement, 7 Oct 2026.
Trainer notes
Reserves were US$ 734,606 million on 2 October 2026 (foreign currency assets 604,747, gold 106,413, SDRs 18,656, IMF position 4,789), down US$ 12,952 million that week. The Governor said reserves cover 94.4% of external debt and that June 2026 capital flow measures have supported inflows. This level is not comparable with slide 4's April-June BoP change, one quarter's transactions. Refresh these from RBI's latest releases.
What funds a current account deficit
Direct investment (FDI)
Money put into businesses and factories. It is usually slow to leave. Net FDI was US$ 13.8 billion in April-August 2026.
Portfolio investment (FPI)
Money in listed shares and bonds. It can reverse quickly. Net outflows were US$ 10.3 billion from April to 5 October 2026.
Borrowings and deposits
Loans raised abroad by companies, and NRI deposits. They bring foreign money in now and are repaid or withdrawn later.
Reserves
If inflows fall short, the gap is met from RBI's foreign exchange reserves. Reserves are a limited stock.
Source for the FDI and FPI figures: RBI Governor's Statement, 7 Oct 2026, para 21. The descriptions are general; exceptions exist.
Trainer notes
The size of a deficit is one question; how it is funded is another. FDI can also leave, through repatriation and Indian companies investing abroad, which is why the figure quoted is net. In April-June 2026 external commercial borrowings brought in a net US$ 3.3 billion and NRI deposits US$ 2.8 billion. Describe; do not rank one source as good and another as bad.
How the picture differs from 2013
2012-13
- Current account deficit: US$ 87.8 billion, 4.8% of GDP.
- Goods trade deficit: US$ 195.7 billion.
- Net services receipts: US$ 64.9 billion.
- Reserves: US$ 292.6 billion on 29 March 2013.
2025-26
- Current account deficit: US$ 25.2 billion, 0.6% of GDP.
- Goods trade deficit: US$ 337.3 billion.
- Net services receipts: US$ 216.6 billion.
- Reserves: US$ 734.6 billion on 2 October 2026.
Take-away: The goods gap is wider than in 2012-13. Net invisibles: US$ 312.0 billion now, about US$ 108 billion then.
Sources: RBI BoP press releases, 27 Jun 2013 (as first published) and 8 Jun 2026; RBI Weekly Statistical Supplement, 5 Apr 2013 and 9 Oct 2026.
Trainer notes
Older training material on the rupee and the current account was written around 2012-13, when the deficit was 4.8% of GDP, and it treats that as the normal state of affairs. The 2025-26 figure is 0.6%. A smaller deficit does not mean the external account is free of pressure: reserves fell on a BoP basis in 2025-26 and portfolio investors were net sellers. The 2012-13 figures are as first published in June 2013.
Four things people get wrong
Misconception'A current account deficit is a loss.'
What is trueIt means the country spent more abroad than it earned abroad in that period. The gap was met by capital inflows or reserves.
Misconception'Trade deficit and CAD are the same.'
What is trueIn 2025-26 the goods deficit was US$ 337.3 billion. After services, income and transfers, the current account deficit was US$ 25.2 billion.
Misconception'CAD is the Government's deficit.'
What is trueIt covers every resident: households, companies and Government. The Government's own gap is the fiscal deficit, counted in rupees.
Misconception'India's CAD is 4.8% of GDP.'
What is trueThat was 2012-13. RBI's figure is 0.6% for 2025-26 and 0.5% for April-June 2026. Check the period before you quote a number.
Trainer notes
On the first point: whether a deficit is a strain depends on its size and on how it is funded, which is why slide 8 matters. The deck 'Fiscal deficit and the Budget' covers the Government's own deficit.
Check yourself
Question 1: A country exports goods and services worth 300 and imports 340. It receives a net 15 of income and transfers (US$ billion, assumed). What is its current account balance?
Answer: 300 − 340 + 15 = −25. A current account deficit of US$ 25 billion.Question 2: The same country receives net capital inflows of 18. What happens to its reserves?
Answer: 25 − 18 = 7. Reserves fall by US$ 7 billion, leaving aside errors and omissions.Question 3: Name the four lines of the current account. Which two were in surplus for India in 2025-26?
Answer: Goods, services, primary income and secondary income. Services (+216.6) and secondary income (+143.6) were in surplus; goods (−337.3) and primary income (−48.2) were in deficit. US$ billion, RBI preliminary data.
Sources and disclaimer
Sources for the figures in this explainer
- 2025-26 and January-March 2026: RBI, 'Developments in India's Balance of Payments during the Fourth Quarter (January-March) of 2025-26', Press Release 2026-2027/412, 8 Jun 2026.
- April-June 2026: RBI Press Release 2026-2027/1015, 1 Sep 2026, 'Developments in India's Balance of Payments during the First Quarter (April-June) of 2026-27'.
- Foreign exchange reserves, US$ 734,606 million on 2 Oct 2026: RBI Weekly Statistical Supplement, 9 Oct 2026.
- Import cover, external debt cover, FDI April-August 2026 and FPI to 5 Oct 2026: RBI Governor's Statement, Press Release 2026-2027/1266, 7 Oct 2026.
- 2012-13: RBI, 'Developments in India's Balance of Payments during the Fourth Quarter (January-March 2013) of 2012-13', 27 Jun 2013.
- Reserves of US$ 292,646.5 million on 29 Mar 2013: RBI Weekly Statistical Supplement, 5 Apr 2013.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).