India's BoP swung to a deficit of USD 4.4 bn in May-26, reversing a surplus of a similar magnitude a year ago
Download ReportQuantEco Research | Balance of Payments | May-26 - Carries the war imprint
The Middle East Crisis has left its imprint across the external accounts. The reversal of BoP into deficit from a surplus, a year ago was led by the capital account, which turned to a deficit of USD 2.4 bn (from a USD 3.7 bn surplus) amid an FPI exodus and subdued FDI inflow, while the current account also slipped into a deficit of USD 2.0 bn on the back of a wider merchandise trade gap. A frontloading of remittances and a steady services surplus provided partial cushion. On a cumulative basis, the BoP recorded a deficit of USD 11.0 bn in the first two months of FY27, with portfolio outflows emerging as the largest drag. Two silver linings stand out on FYTD basis: Transfers have been growing at a robust pace, while the Basic BoP has turned positive. The coordinated policy steps taken by the GoI and the RBI to attract targeted debt inflows are gaining early traction – FPIs clocked a record USD 5.8 bn of net domestic debt purchases in Jun-26 and equity flows have turned positive after a gap of four months. Going forward, we expect up to USD 75 bn of inflows via FCNR(B) deposits, ECBs, and OFCBs by Dec-26. Assuming an average crude oil price of USD 80-85 pb, we maintain our FY27 forecasts for the current account deficit at 0.9% of GDP (USD 36 bn) and an overall BoP surplus of USD 70 bn, while remaining watchful of the oscillating risks in the Middle East region.