Economists slash BoP surplus estimates for FY27

The BoP was in a surplus of $58 billion in April-August mainly due to large inflows under the Reserve Bank of India’s (RBI) Foreign Currency Non-Resident Bank (FCNRB) scheme. In the same period a year ago, the BoP was in a marginal deficit of $0.8 billion. 3 billion cumulatively. However, despite allowing for higher foreign direct investment (FDI) estimates on account of IDBI Bank sale, the cumulative BoP surplus is placed at a mere $1.7 billion, with the risk of it falling back into the negative if CAD surprises higher,” YES Bank economists Indranil Pan and Khushi Vakharia said.

YES Bank projects BoP to be in a surplus of $61 billion in FY27.The BoP was in a deficit of $24 billion in FY26 and a $5 billion in FY25. NRI deposits of $119.2 billion drove the BoP surplus in April-August, while the current account deficit (CAD) widened to $18.3 billion in the first five months of the year from $12.8 billion a year ago. Moving ahead, NRI deposit flows are seen moderating with the FCNR window closing on August 31.

With no such capital flows seen in October–March, the BoP is seen in a moderate surplus. High NRI deposits have masked the underlying pressure on BoP so far this year, economists said. “The underlying pressure on India’s balance of payments can be quantified if one removes the dollars brought in by the three swap windows, tracking at $150 billion. The FY27 BoP estimate without the swap windows would have been -$100 billion,” said Gaura Sen Gupta, chief economist, IDFC FIRST Bank.

IDFC projects FY27 BoP surplus to be around $50 billion, significantly lower than its previous estimate of $90 billion to $100 billion. “The underlying pressure on the BoP remains substantial, reflecting the challenging global environment for attracting capital,” Sen Gupta said. Kotak Mahindra Bank has also revised its FY27 BOP surplus forecast to around $15 billion from $80 billion earlier. The new lower estimate accounts for lower banking capital even with high NRI deposits, unanticipated external commercial borrowing (ECB) outflows to fund FCNR deposits along with the prepayment of existing ECBs, and weak FPI flows even as FDI flows surprise on the upside, said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.

An unexpected headwind for BoP came from a net ECB outflow of $22.4 billion in August. Economists differed on the reason behind this large outflow. “This is a highly unusual and large ECB outflow, which is hard to explain. It could be related to the leveraged FCNR(B) scheme or pre-payment of foreign liabilities by corporates,” Sen Gupta said. Credit under ECB ‘by India’ includes repayments of loans extended to non-residents and debit includes loans extended to non-residents.

This segment, YES Bank economists said, could be the FCNR (B) related lending by India to the non-residents. Economists at HDFC Bank said that the “reasons for this remain uncertain” and should not reflect any FCNR related leverage or lending as ECBs include capital for asset creation. Kotak’s Bhardwaj said that the large ECB outflow in August is due to International Financial Services Centre (IFSC) bank units (IBUs) lending to non-residents for FCNR deposits. “This raises concerns about the effective FX inflow through the FCNR scheme,” Bhardwaj said.