India's current account deficit widens to $4.2 billion in Q1

India's external sector showed signs of strain in the April-June quarter as the current account deficit expanded to $4.2 billion, reflecting mounting pressure from international trade flows. The broader balance of payments position deteriorated further, recording an overall deficit of $8.1 billion as foreign investors pulled out capital from Indian markets.

The deterioration was driven by two key factors: an expanding merchandise trade deficit and sustained portfolio outflows. The widening trade gap suggests growing import pressures even as export demand remains subdued in the global economy. Meanwhile, foreign portfolio investors have been net sellers of Indian securities, reflecting broader emerging market headwinds and shifting global investment preferences.

The shift represents a significant reversal from the year-ago quarter, when India recorded a balance of payments surplus of $4.5 billion. This turnaround has implications for India's foreign exchange reserves and the rupee, which has faced depreciation pressures in recent months amid the outflows.

Economists attribute the widening deficits to structural factors including India's dependence on imported commodities and the cyclical nature of global capital flows. The current account deficit, while manageable at 1.2 per cent of gross domestic product in annualized terms, bears monitoring as policymakers assess the sustainability of India's external position amid slowing global growth.