Balance of Payments: current and capital account: notes for bank exams

At a glance

The Balance of Payments (BoP) records every economic transaction between residents of India and the rest of the world over a period. It has two main parts. The current account covers goods, services, income and transfers. The capital account covers investment, loans and banking capital. Whatever surplus or deficit is left over shows up as a change in foreign exchange reserves.

Key facts

Compiled by: Reserve Bank of India (BoP data)
Merchandise trade data: compiled by DGCI&S, Kolkata (Department of Commerce, Ministry of Commerce and Industry) and released around the 15th of each month
DGCI&S origin: a Statistical Branch set up in the Finance Department in 1862
Current account parts: merchandise trade plus invisibles (services, primary income, secondary income or transfers)
Capital account parts: FDI, FPI, external loans (ECBs, external assistance), banking capital including NRI deposits
Sign convention: a rise in reserves is shown with a minus sign
August 2026 CAD: US$5.2 bn (US$6.1 bn in August 2025); April–August 2026 CAD: US$18.3 bn
September 2026 merchandise trade: exports US$44.40 bn (up 23%), imports US$74.61 bn, deficit US$30.21 bn

How it works

Current account. India usually runs a large deficit in goods trade, because it imports oil, gold and electronics. This is partly offset by a surplus on invisibles. Net services exports, led by software and business services, and private transfers (remittances from Indians abroad) are the two big earners. Primary income, mainly interest and dividends paid abroad, is usually a net outflow.

Capital account. The current account deficit (CAD) has to be financed by net capital inflows:

Flow	What it is	Nature
FDI	Lasting stake in a business	Stable
FPI	Shares and bonds bought by foreign portfolio investors	Volatile ("hot money")
ECBs and loans	Borrowing from abroad	Debt-creating
NRI deposits	Banking capital	Rate-sensitive

Reading the balance. If capital inflows are larger than the CAD, the BoP is in surplus and reserves rise. That rise is recorded with a minus sign under monetary movements, because reserves are an "outflow" that balances the account. A BoP deficit draws reserves down, which is shown with a plus sign.

What drives the CAD: oil and gold prices, how strong domestic demand is (imports), global demand (exports), services exports and remittances.

Recent developments

15 Oct 2026: The RBI's BoP data for August 2026 showed a CAD of US$5.2 bn, down from US$6.1 bn a year earlier. The merchandise trade deficit was US$26.6 bn and net services receipts were US$16.5 bn. The capital account surplus rose to US$50.6 bn, helped by net NRI deposit inflows of US$83.0 bn, and reserves rose by about US$45.4 bn on a BoP basis.
15 Oct 2026: Trade data for September 2026 showed exports up 23% to US$44.40 bn and imports up 8% to US$74.61 bn. The trade deficit narrowed to US$30.21 bn from US$33 bn. For April–September, exports were US$259.89 bn and imports US$437.53 bn.

Exam traps

Trade deficit is not the CAD. The CAD is the trade deficit minus the net invisibles surplus, so it is much smaller.
Remittances are current account (transfers), not capital account. NRI deposits are capital account.
A rise in reserves carries a minus sign in the BoP table.
The RBI compiles the BoP, but the Commerce Ministry (through DGCI&S) compiles trade data.
FDI is the stable flow and FPI the volatile one. Don't swap them.

Quick check

Q: Where are remittances recorded in the BoP? A: Current account, under transfers (invisibles).
Q: Which body compiles India's merchandise trade statistics? A: DGCI&S, Kolkata.
Q: What was India's CAD in August 2026? A: US$5.2 bn.

Sources

In the news

Every time this topic has appeared in our current affairs, newest first:

Week of 15–21 October 2026August current account deficit narrows to US$5.2 bn; capital inflows surge
Week of 15–21 October 2026September exports rise 23% to US$44.4 bn; trade deficit US$30.2 bn