India’s BoP Deficit Widens to $8.1B Amidst Record Bank Deposits

India’s balance of payments (BoP) recorded an $8.1 billion deficit in the first quarter of 2026-27 (Q1FY27), a significant reversal from the previous year’s surplus. This occurred even as bank deposit growth surged to 15.4%, reaching its highest rate since December 2016.

Understanding the Balance of Payments Shift

The reported deficit contrasts sharply with a $4.5 billion surplus observed in Q1FY26. This reversal was primarily driven by a significant change in portfolio flows, which resulted in a net outflow within the capital account during the quarter.

For Q1FY27, the overall BoP showed an $8.1 billion deficit. This is a notable shift from the $4.5 billion surplus recorded in Q1FY26. Meanwhile, bank deposit growth reached 15.4%, a rate not seen since December 2016.

Current Account Dynamics and Trade

While the current account deficit (CAD) largely held steady at $3.1 billion throughout Q1FY27, it experienced a notable widening in June. The deficit expanded to $6.2 billion in June alone, compared to a $1.2 billion surplus in June 2025.

This June widening was predominantly due to an increase in the merchandise trade deficit. Both merchandise exports and imports saw increases, contributing to a larger gap of $30.2 billion, up from $19.2 billion.

The higher merchandise deficit was partially offset by an improved services surplus. This surplus rose to $17.9 billion in June, providing some relief to the overall trade balance.

Capital Account Flows and Future Projections

The capital account saw mixed movements during the quarter, with foreign portfolio investment (FPI) recording a net outflow of $9.6 billion. Conversely, net foreign direct investment (FDI) recorded an inflow of $7.8 billion, while banking capital also saw a net inflow of $3.5 billion.

Despite the quarterly deficit, the overall BoP turned positive in June, registering a $2.9 billion surplus. Experts anticipate that the capital account will largely maintain a positive trajectory in the upcoming quarters.

This positive outlook is attributed to specific RBI measures concerning Foreign Currency Non-Resident (FCNR) deposits and External Commercial Borrowings (ECBs). These initiatives are expected to significantly boost India’s forex surplus.