India's Current Account Deficit Outlook for FY27: RBI's Strategic Initiatives

Current Account Deficit Projections

India is expected to maintain a current account deficit (CAD) in FY27. However, a new report from SBI Research suggests that recent policy measures introduced by the Reserve Bank of India (RBI) could significantly enhance the nation's external financial position and potentially lead to a balance of payments (BoP) surplus. The report highlights that the RBI's initiatives announced in February and June 2026 are designed to bolster the external sector by attracting foreign investments, supporting the rupee, and facilitating access to international funding.

The report states, "The RBI's actions in February and June 2026 should be seen as a coordinated effort to stabilize the rupee, deepen the domestic debt market, attract more stable foreign capital, and reduce barriers to external funding." SBI Research anticipates that India's current account deficit will range from 1.5% to 1.7% of GDP in FY27, but believes this deficit can be effectively financed through increased foreign currency inflows resulting from the RBI's recent initiatives.

According to the report, these measures could significantly alter the country's external account status, projecting a BoP surplus between $5 billion and $10 billion for FY27, a stark contrast to the previous estimate of a $65-70 billion deficit. Consequently, the current account deficit is expected to remain within the 1.5-1.7% of GDP range for FY27.

SBI Research identifies several channels that could attract fresh foreign capital amounting to $55-65 billion during FY27, providing a robust buffer against external risks. A considerable portion of these inflows is anticipated to come from Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, which are expected to contribute approximately $40-45 billion. Banks are likely to offer attractive FCNR(B) deposit rates of around 5.5-6%, making this scheme appealing to overseas investors.

The report further notes that the RBI has enhanced the attractiveness of these deposits by exempting new FCNR(B) funds from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements. Additionally, the central bank will cover hedging costs, further increasing the appeal of this financial instrument. Furthermore, the ECB/OFCB swap facility is projected to generate an additional $15-20 billion by promoting new foreign currency borrowings and improving dollar liquidity.

Strengthening Reserves and Liquidity

SBI Research believes that the anticipated inflows could bolster India's foreign exchange reserves and provide the RBI with enhanced flexibility to manage currency market fluctuations. The report also highlights potential advantages for the domestic banking sector, estimating a deposit growth of around 14.5-15% in FY27, compared to an expected credit growth of about 16%. This could help close the gap between deposits and loans, alleviating liquidity constraints.

Earlier this week, the RBI announced that new FCNR(B) deposits mobilized under the US Dollar-Rupee swap facility would be exempt from CRR and SLR requirements. This exemption applies to deposits with tenures of three to five years raised until September 30, 2026, and covers commercial banks, small finance banks, regional rural banks, and rural cooperative banks.

According to SBI Research, the combination of increased foreign capital inflows, a healthier balance of payments, and rising forex reserves could enhance India's macroeconomic stability in FY27, even as the country navigates a moderate current account deficit.