The Reserve Bank of India reported on 1 September 2026 that the current account deficit widened to $4.2 billion in the June quarter, or 0.5 per cent of GDP, from $3.4 billion a year earlier. The larger number behind it is the trade gap: the merchandise deficit widened to $86.1 billion from $68.9 billion, with the petroleum deficit alone rising to $37.6 billion.
The cause is price, not volume. India’s crude import bill rose 56.5 per cent to $63.4 billion between April and July, while the volume imported barely moved — 81.9 million tonnes against 81.5 million tonnes a year earlier. India imports more than 88 per cent of its crude, and roughly half of that, along with about 60 per cent of its LPG, transits the Strait of Hormuz.
The financing side turned as well. Foreign portfolio investment swung to a net outflow of $9.6 billion from an inflow of $1.6 billion. Net foreign direct investment rose slightly to $6.1 billion, and remittances were stronger at $42.9 billion. The overall balance of payments moved to a deficit of $8.1 billion, against a surplus of $4.5 billion a year earlier, and reserves fell by the same $8.1 billion on a balance-of-payments basis — a further $14.4 billion went out through valuation effects as gold prices fell and the dollar strengthened.
Underneath the external numbers sits a domestic squeeze. The three state-owned oil marketing companies have been selling below cost since the government froze retail fuel prices on 25 May. Industry estimates of the loss per litre vary widely with the crude price and the date — ICRA put it at about ₹5 on petrol and ₹23 on diesel at September prices, while the petroleum minister cited figures several times larger at the peak. A central excise cut on 26 March absorbed part of it by reducing the special additional excise duty by ₹10 a litre on both fuels, without passing anything to consumers. The government has estimated the revenue forgone at over ₹7,000 crore a fortnight.
The rupee has borne much of the adjustment, weakening past ₹95 to the dollar, and the RBI has responded with concessional swap rates for banks, tax exemptions for foreign investors in government securities, and hedging-cost support for foreign-currency deposits. The chief economic adviser, V. Anantha Nageswaran, has described the episode as a live stress test of the external account and argued India enters it with lower inflation, higher reserves and a smaller deficit than in 2013. The RBI’s August statement put FY27 inflation at 5.0 per cent, with a peak of 5.9 per cent in the third quarter.
