India May See Dollar 60-65 Billion Balance of Payments Surplus in FY27 Despite CAD Pressure

Mumbai, Sep 4: India’s external sector is expected to strengthen considerably in FY27, with the country’s balance of payments (BoP) projected to register a surplus of around $60-65 billion despite a likely increase in the current account deficit (CAD).

The improved outlook is largely linked to the strong foreign currency inflows seen in recent months. The inflows are expected to provide a cushion against pressures from the merchandise trade deficit and help reinforce India’s external financial position.

The latest assessment comes after India attracted a substantial amount of foreign currency through special deposit and foreign exchange measures. The inflows have boosted the country’s foreign exchange reserves and provided the Reserve Bank of India with greater room to manage volatility in the rupee.

A wider CAD remains a concern, particularly because of elevated import costs and global commodity prices. However, strong services exports, remittances and capital inflows are expected to offset a significant part of the pressure on the current account.

The stronger BoP position could also support the rupee by improving the availability of foreign currency in the domestic market. India’s foreign exchange reserves have already climbed to a record level of around $729.3 billion following the recent surge in inflows.

For the economy, a sizeable BoP surplus would strengthen the external buffer and help India deal with global uncertainties, including movements in crude oil prices, changes in US interest rates and fluctuations in international capital flows.

The sharp inflow of foreign currency has also created a new challenge for policymakers, with excess rupee liquidity building up in the banking system. Banks have been discussing measures with the RBI to absorb the surplus liquidity without disrupting financial-market conditions.

Overall, the expected BoP surplus points to a stronger external position for India in FY27. While the widening CAD will require close monitoring, sustained foreign inflows and healthy services earnings could help the country maintain a comfortable external balance.