India’s BoP surplus likely to cross $100 billion this fiscal on FCNR-B inflows, offer FY28 cushion as…

New business data points to the fact that India’s balance of payments (BoP) surplus could cross $100 billion this fiscal year following the success of the Reserve Bank of India’s concessional swap window that closed August 31, economists from Barclays have stated.

Market watchers at Bank of Baroda and CareEdge Ratings estimate the BoP surplus in the $65 billion-$75 billion range.

Earlier, market watchers pegged the BoP surplus at $50 billion. India’s FY26 BoP deficit was at $23.6 billion, according to recent data.

“The RBI’s measures to attract foreign inflows have been a resounding success, with total inflows mobilised far exceeding the anticipated target. This will bolster India’s external buffers, at a time of heightened external volatility,” Aditi Gupta, an economist with Bank of Baroda, stated in a research note.

Under the foreign currency non-resident bank (FCNR-B) deposit scheme, a record $127.2 billion worth of inflows was garnered, nearly seven times the previous round in 2013.

Including external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs), the total inflows came up to $136.4 billion.

The broader consensus now points to FY27 as the year India appears well-positioned to log a substantial BoP surplus.

For Q1, that stated, the current account deficit (CAD) stood at $4.2 billion (0.5 percent of GDP), as compared to $3.4 billion in Q1 FY26, as a wider goods trade deficit was offset by firm remittances.

Barclays economists have revised their CAD forecasts to 1.3 percent of the gross domestic product from earlier 1.5 percent.

“Capital inflows via the FCNR route have surprised materially on the upside, at the closing bell of the window on 31 August. Combined with the softer-than-anticipated current account deficit in Q1 FY27, we have revised our BoP surplus forecast….” economists from Barclays wrote. Partial cushion for FY28

Though these inflows are supposed to provide some level of respite to India’s external position even beyond FY27, economists say these deposits should be treated as liabilities to be repaid, and not permanent form of inflows.

“This FCNR-B money is contractual, leveraged debt with set maturities, not durable equity or export earnings, so the reserve lift is partly borrowed and carries a bunched repayment and rollover profile on exit,” market watchers from Choice Institutional Research stated.

The immediate benefits are likely stronger foreign exchange reserves, larger room to manage external shocks and a better ability to defend the indian rupee.

There is a reduced risk of a sharp deterioration in the BoP next fiscal year. That stated, that would additionally depend on the CAD and future inflows, experts say.

India’s forex reserves rose to a record $729.3 billion as of August 21, following the large mobilisation under the special schemes.

RBI steps up liquidity measures

While FCNR-B deposits have given a much-needed lift to the country’s external position, the central bank must now manage a deluge of dollars flowing into banking system liquidity, economists stated.

With system liquidity touching more than Rs 10 lakh crore as of last week, the RBI conducted Variable Rate Reverse Repo Operations (VRRR) on to suck out excess liquidity.

Between August 6 and September 2, the RBI conducted VRRR operations for a cumulative amount of Rs 53.5 lakh crore. Banks have shown more interest in short-term VRRR auctions as compared to longer durations.

More measures are anticipated to absorb the liquidity, according to BoB and Barclays’ economists.

“The objective will likely be to address a sudden liquidity overhang, temporarily, with periodic reviews, and a partial fortnightly unwind. Like in 2023, the central bank could announce an ICRR targeting deposit accretion between June and September,” Barclays economists stated.

The upcoming festival season offers another solution through a climb in currency in circulation. As an autonomous liquidity driver, elevated withdrawals by consumers will help drain excess cash.

Regular interventions by the RBI in the spot and forward forex market will additionally help absorb liquidity, economists stated.