NEW DELHI: India’s external position exhibits significant resilience as a robust balance of payments (BoP) projection provides substantial support to the domestic currency, according to a research report by ICICI Bank. The report projected that the country’s BoP surplus will expand sharply to reach between USD 97 billion and USD 100 billion in the financial year 2026-27 (FY27).
The research findings attribute this positive trajectory to steady capital receipts, manageable trade parameters, and expanding external reserves, which together create a protective cushion against global macroeconomic volatility and spillover risks.
In its macroeconomic evaluation, the ICICI Bank research report said: “A bigger change is the far more stable performance of the domestic currency compared with the sharper depreciation episodes seen earlier in the year.”
On the current account front, higher remittances up 24 per cent year-on-year in the April–July period and steady services export growth of 8.5 per cent year-on-year in the April–August period cushion the goods deficit.
With average crude oil prices near USD 94 per barrel, the merchandise goods deficit is projected at USD 387 billion to USD 400 billion, keeping the current account deficit between 1.2 per cent and 1.6 per cent of gross domestic product. “Overall, we see BoP surplus of USD 97-100bn in FY27 now compared with a large deficit seen in last two years,” the report said.
Macroeconomic growth remains firm, expanding by 7.8 per cent in the first quarter of FY27, supported by exports, investments, and manufacturing activity. Overall annual economic growth is estimated at 7.1 per cent. Headline inflation faces upward pressure from lower monsoon rainfall and sowing deficits, bringing expected inflation to 5.0 per cent and prompting potential policy tightening.
“In the near-term, the stronger dollar profile and higher oil prices could continue to keep the INR under pressures, but RBI’s active dollar selling should ensure a much stable trading environment for the domestic currency,” the report noted.
“Given the large FX inflows and stronger FX reserves (USD 780bn), the central bank is in a much better position to curb the excessive depreciation pressures unlike earlier periods,” the report added.
The central bank holds a forward dollar book of USD 137 billion as of July-end. On a 40-currency real effective exchange rate basis, the Indian currency remains undervalued, with USD/INR projected to trade within a range of 94 to 96 in the near term. (ANI)
