This current account surplus of $7.1 billion in Q4 FY26 looks good on paper. Beneath the headlines, though, a more uncomfortable story emerges: Software engineers in Bengaluru and plumbers in New Jersey are quietly doing the heavy lifting, while the crude oil importers and gold shoppers are undoing it.

India concluded fiscal year 2026 with a bang at least superficially. Data on the balance of payments of Reserve Bank of India was released on Monday, indicating a current account surplus of $7.1 billion (0.7 per cent of GDP) for the January-March quarter of 2025-26. That is an excess and in the world of macroeconomic scorecards, the excess is a pass. However, look at India a year ago and many things change. The Q4 FY25 surplus was at $13.7 billion or 1.4 per cent of GDP, almost double. This means the math of the current account is getting worse, despite its positive sign.

To understand that, one has to look beyond the number and what one finds there, says more about the structure of the Indian economy than the number of any particular quarter would.

The trade deficit elephant in the room

The decline in the surplus in Q4 FY26 was entirely due to a significant increase in merchandise trade deficit, which stood at $83.4 billion in Q4 FY26 as against $59.3 billion in Q4 FY25. That's a $24+ billion increase in one year, in one quarter. In other words, $24 billion is the equivalent of the GDP of several small countries and is the sort of goods-trade decline that typically inspires finance ministers to pull out the antacids.

Despite the depreciation of the rupee which, according to the standard trade theory, should have pushed up the import prices while making exports more competitive, and hence, narrowed the deficit the merchandise trade deficit instead expanded by an almost 19 per cent in the first 11 months of FY26. That it didn't compress is the important signal here. The leading import is crude oil, which can't be replaced in the short run its demand is given by transport requirements and industrial activity, not by the price of oil. Other big categories, such as electronics imports, are inflexible, too. If the top two import items are not sensitive to prices, then currency devaluation is not a rebalancing tool, but a tax on the economy.

But on the gold side, it was a price story; after all, the volume of gold imports has decreased from 757 tonnes to 721 tonnes, whereas the unit value has increased from $76,617 per kg to $99,825 per kg, driving gold imports up 24.1 per cent to $71.98 billion in FY26. The Indians were not all of a sudden spending a lot more on gold; they simply made gold a lot more expensive and Indians still bought it. The average import volume of gold in FY26 was 8.9 per cent of all imports, compared to 7.8 per cent in FY25 and 6.6 per cent in FY24. The direction is unidirectional and now government is taking steps to cut down import quantities to stop the effect on the current account.

Services and remittances: the invisible bridge

A key factor in the current account not coming to a complete halt because of the merchandise deficit was the strong performance of India's services export engine. Net services receipts rose to $60.4 billion in Q4 FY26, up from $53.3 billion in Q4 FY25, and services exports grew year over year in all key areas, such as computer services and other business services.

This expansion is not to be understated. India's services exports surpassed $348 billion in the first half of FY26, or about 10 per cent of the country's GDP, in April to January alone. That's not a sector that's working well, it's a sector carrying the external balance of the economy on its back. That GCC ecosystem employs some 2.35 million people and generates nearly $98 billion in India's services revenues, and that is one of the structural pillars as to why India's services surplus continues to grow even when the global macro environment is choppy.

Total exports are up 13.6 per cent year-on-year to $80.8 billion with services exports alone up 13.4 per cent to $37.2 billion in April 2026. In contrast, goods exports, which have been hit hard by tariffs, logistics costs and competitiveness issues with Vietnam and Bangladesh, could be in a worse state.

Then there is the remittance story and that perhaps is the least spoken macro-economic fact about India today. In FY26, India was poised to see a record remittance inflow of $137–140 billion, which is more than the GDP of several countries, per SBI Research. India continued to be the largest remittances recipient, with inflows of $135.4 billion in FY25, and FY26 is expected to exceed that as well. The current account deficit would be significantly larger and the external account would be under much more stress in a normal year if it were not for remittances, which fund almost half of India's merchandise trade deficit in a typical year.

Geographically, these remittances also have been changing in the long-term with structural consequences. A larger share of the remittances from high developed countries indicates that the contribution of skilled and professional Indian workers to these remittances is increasing, and this remittance is not only coming from construction workers in the Gulf but also from IT professionals, healthcare workers, and finance executives. That gives some immunity from oil price fluctuations, although the Economic Survey said a headwind from oil price sentiment may impact remittance growth in the future as more countries tighten immigration.

The broader picture for the entire year and the hidden truths within it.

The current account deficit (CAD) for the full fiscal year (FY26) was 0.6 per cent of GDP, while the absolute deficit grew to $25.2 billion from $22.9 billion in FY25. On a percentage of GDP basis this would appear flat and on even a fair measure 0.6 per cent is not an alarming number. As recently as FY23, India had a deficit of 2 per cent of GDP. But the direction of travel is worth watching: while the GDP denominator is increasing the absolute deficit is even growing and the surplus in Q4, which usually gives a seasonal cushion, is now about half as large as it was a year ago.

The capital account is even more pointed. On the surface, it appears that net FDI inflows rose to $6.9 billion in FY26 from $1 billion in FY25. However, net FPI outflows were $16.4 billion in FY26 compared to net inflows of $3.6 billion in the previous year a $20 billion shift in portfolio investment alone. The forex reserves shrank by $23.6 billion in FY26, whereas it stood at $5 billion in FY25.

Gross FDI inflows rose to a record $94.5 billion in FY26, up 17.3 per cent from FY25, which is indeed good growth and a testament to the sustained faith in India's long-term growth story. However, there is a difference between gross and net. However, when Indian firms invest overseas and at the same time portfolio investors pull back, the overall picture is far less sunny and that is what is represented in the drawdown of the reserves.

What is the connection between the rupee, the reserves and the tightrope?

The depreciation of the rupee in FY26 was 5.4 per cent against the US dollar, which had mixed impacts. It in theory increased the rupee value of the remittances received by Indians, as well as reduced the price of IT services to buyers around the world, giving the two pillars some relief. It also increased the import price of crude oil and gold in rupee terms, which led to fiscal stress and imported inflation.

RBI and the government have been mulling upon various measures in order to increase the inflow of foreign currency, such as promoting foreign borrowing, encouraging NRIs to deposit their funds in banks and supporting banks to borrow dollars from the outside all for the purpose of bolstering forex reserves and relieving the rupee pressure. As of January 2026, Forex reserves were approximately equivalent to 11 months of imports and 94 per cent of outstanding external debt, which is quite comfortable, but has been visibly depleted by the increase in reserve utilisation in FY26.

The more pressing medium-term concern is not the Q4 FY26 data, but is found in FY27. Higher crude oil prices, higher wholesale inflation, rupee depreciation, and the potential for a below-normal monsoon could prove to be major challenges for growth and inflation in FY27. The petroleum import bill, which had shown a decline of 6.4 per cent in FY26 due to cheaper Russian oil, is likely to turn around significantly in the upcoming year as the tensions in West Asia propelled crude oil to and above $100 per barrel in the recent weeks. That changes in Fy27 as the Strait of Hormuz is now disrupted and crude is trading above $100 per barrel at the same time, higher crude prices and potential supply constraints will boost the import bill and make Indian petroleum product exports less competitive.

The truth about the data!

That surplus is real and one can only admire the structural basis that created it, in the Q4 of FY26. In India, the IT industry and the professional services economy has turned into a true global institution, and no longer merely an export earner. Amongst the most reliable sources of hard currency that the country has is the remittance machine, which is driven by 35 million Indians residing and working abroad. That is not a cyclical event, but one that’s the legacy of decades of investments in human capital, which now manifests itself as a permanent structural cushion in the balance of payments.

But here's one interpretation of these numbers that policymakers should take seriously: The merchandise trade deficit is growing more rapidly than the services surplus is growing. The former expanded by more than $24 billion in the comparison, while the latter expanded by around $7 billion in the same comparison. The difference between those two contours is the stress point. Services and remittances cannot be scaled up indefinitely in the short term and the structural reforms required to boost competitiveness of Indian goods manufacturing depth, logistics connectivity, energy self-sufficiency are multi-year initiatives.

The trade surplus in services was $134.13 billion in November 2025, 15.28 per cent higher than a year earlier, supported by strong IT and GCC exports, and the services export performance remained strong despite many external stresses. That's a lot of resilience that definitely needs to be recognized. The same holds true for the remittance inflow narrative. But credit is not complacency, and the Q4 FY26 surplus that contracted by nearly half in a year while the trade deficit ballooned, isn't a sign of a well-balanced external account.

India's informal sector is well doing its work. The question for FY27 and beyond is whether the visible one (the ships, containers, crude tankers, gold vaults, etc.) can be rebalanced sufficiently to allow the invisible one to breathe.