India registers a Net BoP surplus of 0.7% of GDP (USD 7.2 bn) in Q4 FY26 after two consecutive quarters of deficit
Download ReportQuantEco Research || Q4 FY26 BoP - External risks meet decisive policy response
For FY26, the current account deficit remained steady at 0.6% of GDP. Although the merchandise trade deficit jumped to a 13-year high, the drag was offset by an improvement in invisibles. While that’s encouraging, the capital account balance exhibited weakness, as reflected by foreign portfolio outflows and moderation in external loans. Overall, Net BoP stood at a 14-year low, posting a deficit of 0.6% of GDP (USD 24 bn). More importantly, this marked the second back-to-back annual BoP deficit, something last seen in the late 1980s. The ongoing Middle East crisis is fanning shocks in energy items, along with other commodities like fertilizers. The uncertainty surrounding the ceasefire is also weighing on global risk appetite, which in turn is dampening the flow of foreign capital to EMs, including India. In addition, a prolonged state of conflict has the potential to lower the flow of remittances to India. Having said, the recent coordinated policy interventions undertaken by the government and the RBI will help to moderate the current account deficit, incentivize capital flows, and lower the overall pressure on FY27 BoP. Assuming an average crude oil price of USD 95 pb, we project India’s current account deficit to touch 1.8% of GDP (USD 75 bn) in FY27. Notwithstanding a wider CAD, the BoP is likely to move to a neutral position (close to zero) as the short-term leveraged debt inflows aided by RBI’s hedging subsidy would help in bridging the funding gap