Despite a growing merchandise deficit driven by higher oil prices and elevated imports, India’s capital inflows, including foreign portfolio investments and deposits, may help stabilise the rupee in the upcoming fiscal year, according to ICICI Bank.
India’s current account deficit is likely to widen in the next fiscal year, but stronger capital inflows may still help support the rupee in the second half, according to ICICI Bank. The lender expects the goods deficit to expand as domestic demand stays firm and imports remain elevated, even as services exports and remittances continue to cushion the wider external balance.
ICICI Bank said India’s merchandise deficit rose sharply to $85.7 billion in the first quarter of FY27 from $68.9 billion a year earlier, driven by higher oil prices and a jump in non-oil, non-gold imports. The non-oil, non-gold gap alone widened to $55 billion in April-July FY27 from $42 billion a year earlier. Even so, the current account deficit stayed relatively contained at $6.2 billion in the quarter, compared with a surplus of $1.2 billion a year earlier, helped by a 9% rise in services exports to $52.2 billion and a 34% increase in remittances to $41.4 billion.
The bank said remittance flows appeared to have arrived early in the year, with $29.5 billion coming in during April-May and only $11.9 billion in June. Based on current trends, it expects the goods deficit to rise to $390 billion in FY27. It also said that if oil prices ease slightly in the second half, the goods deficit in the remaining eight months could reach about $265 billion, compared with $237 billion a year earlier.
On the capital account, the picture has improved. ICICI Bank said foreign portfolio equity outflows of $6.6 billion in the first half of June have since turned into $5.4 billion of inflows, while debt inflows have strengthened to $7.3 billion. It also pointed to a sharp rise in FCNR deposits, which reached $52.3 billion by 13 August from $36.7 billion at the end of July. HSBC has separately forecast India’s current account deficit to widen to 2.3% of GDP in FY27, while other lenders, including State Bank of India, see a narrower gap, underscoring how much the outlook still depends on oil prices, trade flows and foreign money.
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