India's services trade surplus is expected to touch a record high of $205–207 billion in FY26, as even merchandise exports are experiencing pressure from US tariffs, a report showed on Wednesday.
The nation's current account deficit (CAD) narrowed sharply to $2.4 billion (0.2 per cent of GDP) in Q1 FY26, much better than the $8.6 billion deficit (0.9 per cent of GDP) of Q1 FY25.
This was also well below ICRA's earlier estimate of 0.7 per cent of GDP, supported mainly by better-than-expected remittances and a high services trade surplus.
Invisibles earnings jumped 19.9 per cent year-on-year to $66.1 billion in Q1 FY26, balancing a merchandise trade deficit of $68.5 billion.
ICRA has cautioned that the CAD is expected to increase in Q2 FY26 to $13–15 billion (1.5 per cent of GDP) due to a steep increase in the merchandise trade deficit.
The newly imposed 50 per cent US tariff on Indian exports will put significant pressure on India's exports, especially textiles, diamonds, seafood, and leather. If the tariffs continue for the fiscal year, ICRA expects India's CAD to be higher than 1 per cent of GDP in FY26 compared with 0.6 per cent in FY25," the report said.
India registered net financial inflows of $8.1 billion in Q1 FY26, reversing H2 FY25 outflows. Nevertheless, the rate of reserve asset accumulation eased to $4.5 billion from $8.8 billion in Q4 FY25, ICRA stated.
As on August 22, foreign exchange reserves were at $691 billion. Meanwhile, the Indian rupee weakened 3.2 per cent against the US dollar in 2025 (until September 1).
ICRA forecasts the USD/INR exchange rate to move in the 87.0–89.0 band in the near term.
Speaking about the outlook, the report stated that the path of India's CAD will largely depend on US tariff-related developments.
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