India: Capital flows supported by RBI and government – DBS

DBS economist Radhika Rao details India’s capital account challenges, citing weakening capital flows, softer foreign portfolio inflows and narrower net Foreign Direct Investment (FDI) that pushed the balance of payments into deficit in FY26. She notes sizeable equity outflows in early FY27 but some recovery in FPI debt and FDI. The Reserve Bank of India (RBI) and government have introduced measures in June 2026 to shore up inflows.

Policy support for capital account

"Weakening capital flows have been an enduring problem for the external balances for well over a year, dominated by a slowdown in foreign portfolio inflows, and narrower net FDI position."

"Cumulatively these had pushed the balance of payments position to a deficit in FY26, alongside a moderation in offshore borrowings."

"To support the capital account, the RBI and government undertook a host of measures in June 2026 to shore up inflows, which included."

"For inflation, geopolitics were a bigger worry rather monsoon for the central bank, in our view. We remove our rate hike forecast for FY27 and see downside to our end-year forecast for 10Y yield forecast of 6.9%."

"The need to accommodate higher subsidies and lower revenue growth is likely to result in a modestly wider fiscal deficit in FY27."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)