India’s Balance Of Payments Deficit Rise By Over 6 Times To $30.8 Billion In FY26, Says RBI Annual Report

India’s external sector has come under significant pressure in FY26, with the country’s balance of payments (BoP) deficit widening sharply to $30.80 billion, according to the Reserve Bank of India’s (RBI) latest annual report. The deficit was more than six times higher than the $4.90 billion deficit recorded in the previous financial year and marked a dramatic reversal from the $63.70 billion surplus seen just two years earlier.

A BoP deficit occurs when the total foreign currency flowing out of the country exceeds the inflows received through trade, investments, remittances and other transactions. The RBI said the widening gap led to a drawdown in foreign exchange reserves, with the entire deficit being financed through reserve depletion. The data explains the growing concern within the government and the central bank over the pace of dollar outflows amid a volatile global environment. 

Rising crude oil prices, persistent geopolitical tensions and weaker foreign capital inflows have increased pressure on India’s external accounts and the rupee. The RBI has also intervened aggressively in currency markets, selling dollars to reduce excessive volatility in the domestic currency.

Falling Foreign Capital Inflows Add to Pressure

One of the biggest reasons behind the worsening BoP position was due to the sharp decline in net capital inflows. While net foreign investment in the country remained positive, the pace of inflows have slowed considerably amid global uncertainty and as investors turned risk averse. Additionally, Indian companies investing overseas and portfolio outflows have increased, which resulted in a greater demand for dollars.

The RBI and the government have been considering measures to attract more foreign currency into the country. The regulators have also encouraged overseas borrowings, along with boosting non-resident Indian (NRI) deposits and providing support to banks raising dollar funds abroad. These measures have been taken to strengthen foreign exchange reserves of the country and to ease the pressure on the rupee.

Trade Deficit Remains a Major Challenge

During FY26, India’s merchandise trade deficit continued to remain elevated, driven largely by high imports of crude oil, gold and other essential commodities. India imports nearly 90 per cent of its crude oil needs and relies almost fully on gold imports for its consumption. Although services exports, such as IT and business services continued to generate a substantial surplus, they were not enough to fully offset the widening goods trade gap.

The RBI has maintained that India’s macroeconomic fundamentals remain strong, supported by resilient growth and a healthy services sector. However, the report cautioned that external risks—including geopolitical conflicts, commodity price shocks and fluctuations in global capital flows—could continue to pose challenges.

With the rupee facing pressure and foreign exchange reserves being used to manage volatility, the sharp rise in the BoP deficit has emerged as a key concern for policymakers. India’s forex reserves fell to over a year-low levels of around $681 billion during the week ended May 22, according to the latest data.