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India's Balance of Payments (BoP) is turning positive, but it is likely to remain lower than earlier expectations as elevated oil prices and an expanding non-oil, non-gold deficit weigh on the external trade position, according to a research report by ICICI Bank Global Markets.
"This year trade deficit is bound to go up given elevated oil prices which have averaged USD 92/bbl. along with the fact that non-oil-non-gold deficit is rising. Assuming oil prices average ~USD 95/bbl., goods deficit is estimated at USD 388bn, which implies a current account deficit of USD 57bn or 1.4% of GDP," the report said. The report further pointed out that, "higher banking capital inflows and improvement in FDI is positive, but outflows seen in FPI and ECB are likely to neutralise some of the inflows. Hence, while BoP is turning positive, it is likely to be lower than earlier expectations." Recent monthly BoP data released by the Reserve Bank of India shows that the current account deficit narrowed slightly to USD 5.2 billion in August 2026 compared to USD 6.1 billion in August 2025. However, during April to August 2026, the current account deficit (CAD) widened to USD 18.3 billion from USD 12.8 billion recorded in the corresponding period of the previous year. A substantial shift occurred in the capital account segment, which recorded inflows of USD 76 billion between April and August, compared to USD 12 billion in the same period last year, led by banking capital inflows. Foreign direct investment (FDI) inflows improved, and short-term credit increased to USD 5.5 billion from USD 1.4 billion. These gains were partly offset by foreign portfolio investment (FPI) outflows of USD 3.7 billion and external commercial borrowing outflows of USD 28.3 billion. Consequently, the cumulative BoP surplus stood at USD 58 billion against a deficit of USD 0.8 billion in the year-ago period. On the trade front, India's merchandise exports expanded by 23 per cent year-on-year to USD 44 billion in September, while gross services exports contracted by 0.9 per cent to USD 36 billion. Oil exports climbed 32 per cent on higher refinery margins, and non-oil exports registered a 22 per cent growth, led by electronics at 70 per cent and engineering goods at 21 per cent. Overall merchandise imports grew by a softer 8 per cent to USD 54 billion, held back by an 81 per cent drop in gold imports, even as oil imports advanced 31 per cent. The merchandise trade deficit widened to USD 30.2 billion in September from USD 26.9 billion in August, driven by a higher oil deficit and non-oil non-gold trade gaps. For the first half of FY27, the goods deficit expanded to USD 178 billion against USD 157 billion a year ago. Regarding the domestic currency, the report noted that recent RBI measures will have a significant bearing, keeping a positive bias for the rupee in the near term. (ANI)
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