India's Balance of Payments May Shift to Surplus Amid RBI and Government Measures

New Delhi, India Jul 25, 2026 ALN: New Delhi: India's balance of payments (BoP) could return to a small surplus instead of recording a third consecutive annual deficit following a series of measures announced by the Reserve Bank of India (RBI) and the government in June, according to HDFC Mutual Fund's July report.

The balance of payments is a comprehensive record of a country's transactions with the rest of the world, encompassing trade, investment, and financial transfers. A surplus in the BoP indicates that a country is exporting more than it is importing, receiving more capital inflows than outflows, or both. Conversely, a deficit suggests that a country is borrowing more from foreign sources than it is lending or investing abroad. The BoP is a vital indicator, reflecting the health of a country and influencing its currency value, inflation rates, and overall stability.

The report indicated that these measures could ease pressure on the rupee by improving capital inflows and strengthening the country's external position. The Indian rupee has experienced volatility and depreciation against major currencies in recent years, influenced by factors such as global financial conditions, changes in investor sentiment, and domestic performance. The depreciation of the rupee has raised concerns among policymakers as it can lead to increased costs for imported goods, affecting inflation and the overall .

"The RBI and government's June measures could turn what could have been a third straight year of balance-of-payments deficit into a small surplus, thereby taking pressure off the rupee," the report stated.

According to the report, the RBI's decision to bear the full hedging cost for fresh three-to-five-year FCNR(B) deposits until September 30, 2026, could attract potential inflows of USD 40-60 billion. FCNR(B) deposits, or Foreign Currency Non-Resident (Bank) deposits, are a means for non-resident Indians (NRIs) to hold foreign currency deposits in Indian banks. By absorbing the hedging costs, the RBI is encouraging NRIs to invest in these deposits, which could bolster the country's foreign exchange reserves. The influx of these deposits is crucial as it provides much-needed liquidity and stability to the Indian financial system, especially in of uncertainty.

As of July 17, 2026, around USD 17 billion had already been mobilized under this route, showcasing a positive response from NRIs and indicating a growing confidence in India's prospects. This influx of capital is crucial as it contributes to the stability of the rupee, which has faced downward pressure due to various global and domestic factors. The response from NRIs highlights the importance of trust and confidence in the Indian , which is essential for sustaining long-term growth.

Additionally, the concessional foreign exchange swap facility for external commercial borrowings by public sector undertakings could attract another USD 15-25 billion in inflows while reducing hedging costs. This facility allows public sector enterprises to access foreign currency at favorable rates, promoting investment in infrastructure and other critical sectors of the . Infrastructure development is vital for India, as it can drive growth, create jobs, and improve the overall quality of life for its citizens.

The expansion of the Fully Accessible Route (FAR) for government securities and the removal of foreign portfolio investment limits on short-term investments would improve the flexibility and accessibility of investments in Indian government bonds. FAR allows foreign investors to invest in Indian government securities without restrictions, thereby increasing demand for these bonds and enhancing liquidity in the financial markets. This move is expected to attract a diverse range of international investors, further integrating India into the global financial system.

Furthermore, the report noted that the government's decision to withdraw capital gains and withholding tax on returns from investments in government securities increases the likelihood of Indian bonds being included in the Bloomberg bond index at its next review. Such inclusion could potentially attract USD 10-20 billion over the next 12-18 months, as many global funds benchmark their investments against major indices. Inclusion in the Bloomberg bond index would not only enhance the visibility of Indian bonds but also attract a broader base of international investors. This could lead to a more stable investment environment and encourage long-term foreign investments in India.

The report emphasized that the depreciation of the rupee over the past 12-18 months has been driven largely by weaker capital flows rather than weak fundamentals. In real trade-weighted terms, the rupee was at its most undervalued level since the 2013 taper tantrum as of May 2026. The 2013 taper tantrum refers to the period when the U.S. Federal Reserve signaled a reduction in its bond-buying program, leading to capital outflows from emerging markets, including India. The current situation suggests that the rupee's depreciation may not be indicative of underlying weakness but rather a reaction to shifts in global capital flows and investor sentiment. Understanding these dynamics is crucial for policymakers as they navigate the complex interplay of domestic and international factors.

Looking ahead, HDFC Mutual Fund stated that the recent policy measures have the potential to strengthen India's external sector by supporting capital inflows, improving the balance of payments, and reducing pressure on the rupee. These measures come at a critical time when many emerging markets are grappling with similar challenges, and India's proactive approach could position it favorably in the eyes of international investors. The ability to attract foreign investment is essential for sustaining growth, and these measures could enhance India's competitiveness in the global market.

The implications of a potential BoP surplus are significant for India's . A surplus could lead to an increase in foreign exchange reserves, providing a buffer against external shocks and enhancing the country's ability to manage its currency. Moreover, it could bolster investor confidence, attract further foreign direct investment (FDI), and support the government's ongoing efforts to stimulate growth. A stable currency and a healthy balance of payments position are critical for maintaining stability and fostering an environment conducive to business and investment.

In conclusion, the measures taken by the RBI and the government in June represent a strategic response to the challenges facing India's balance of payments. By fostering an environment conducive to capital inflows and enhancing the attractiveness of Indian assets to foreign investors, these initiatives could play a pivotal role in stabilizing the rupee and promoting sustainable growth in the long run. As the global landscape continues to evolve, the effectiveness of these measures will be closely monitored by analysts, investors, and policymakers alike. The success of these initiatives could serve as a model for other emerging markets facing similar challenges, highlighting the importance of timely and effective policy interventions in safeguarding stability.