India's BoP likely to return to surplus in FY27 as CAD outlook improves: CareEdge

India's balance of payments (BoP) is likely to return to surplus in FY27 after remaining in deficit for the past two financial years, aided by a sharper-than-expected improvement in the current account balance and a surge in capital inflows, CareEdge Ratings said on Wednesday.

The rating agency lowered its current account deficit (CAD) forecast for FY27 to 0.8-1.2% of GDP, from its earlier estimate of 2.1%, citing softer crude oil prices, resilient services exports and remittance inflows, along with an improvement in merchandise exports.

CareEdge now expects India to post a BoP surplus of $25-30 billion in FY27, compared with a deficit of $23.6 billion in FY26 and a deficit of $5 billion in FY25.

The improved outlook is expected to be driven by a sharp rise in capital inflows. The agency estimates the capital account surplus will increase to around $73 billion in FY27, from an estimated $2 billion in FY26.

Net foreign direct investment (FDI) is projected to improve to $15 billion in FY27 from $6.9 billion in FY26, supported by healthy gross FDI inflows and slower growth in repatriation. It also expects recent measures announced by the government and the Reserve Bank of India (RBI) to attract foreign capital to boost foreign portfolio investment (FPI) and other inflows.

According to CareEdge, the RBI's concessional swap windows for FCNR(B) deposits, External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs) could collectively bring in $45-60 billion during FY27.

“We are lowering our current account deficit projection for FY27 to 0.8-1.2% of GDP from our previous projection of 2.1%. The lowering of the CAD projection is mainly because of moderation in crude oil prices and resilience in services exports and remittances, coupled with an improvement in merchandise exports,” said Rajani Sinha, Chief Economist at CareEdge Ratings.

The revised forecast assumes crude oil prices will average $80-85 per barrel during FY27.

CareEdge said services exports and remittances continue to be the strongest pillars of India's external sector. Services exports rose 6.1% in the first quarter of FY27, after expanding 8.7% to $421 billion in FY26, while remittance inflows increased 14.5% to $155 billion last fiscal. Data for April indicates the momentum has continued into the current financial year.

The stronger external position is also expected to support the rupee. However, CareEdge noted that the RBI may unwind part of its large forward foreign exchange book, which had risen to around $107 billion by May-end from $68 billion in January-end, potentially limiting any sharp appreciation in the currency. It expects the USD/INR exchange rate to average between 93 and 94 in FY27, while cautioning that geopolitical tensions in West Asia could continue to cause bouts of volatility.