India Posts USD 45.4 Billion Balance of Payments Surplus in August on Record NRI Inflows and Resilient Services

India's overall balance of payments (BoP) recorded a surplus of USD 45.4 billion in August, marking a dramatic rebound from a deficit of USD 5.6 billion logged in the same month last year, according to data released by the Reserve Bank of India (RBI).

The surplus also accelerated from the USD 20.8 billion surplus reported in July, reflecting strong momentum in capital flows that overshadowed the prevailing shortfall in merchandise trade. Cumulatively, during the April–August period, India's overall balance of payments logged a surplus of USD 58 billion, up from a deficit of USD 0.8 billion during the corresponding period last fiscal year.

Capital Account Drives Massive Inflows

The sharp turnaround in India's external accounts was primarily propelled by the capital account, which registered net inflows of USD 50.6 billion, compared to just USD 0.5 billion a year ago.

Key Drivers of Capital Inflows:

• Banking Capital: Net banking capital recorded an inflow of USD 64.7 billion in August, reversing an outflow of USD 4.7 billion registered in August last year.
• NRI Deposits: Net non-resident Indian (NRI) deposits surged to USD 83 billion during the month, compared with USD 1 billion in the year-ago period, driven by central bank incentives and deposit schemes aimed at attracting foreign currency.
• Foreign Direct Investment: Net foreign direct investment (FDI) turned positive to USD 3.3 billion, recovering from a net outflow of USD 0.1 billion in the same month last year.

Narrowing Current Account Deficit

On the trade and current receipts front, India's current account deficit (CAD) narrowed to USD 5.2 billion in August from USD 6.1 billion a year earlier. A narrowing merchandise trade gap and steady gains in software and business services exports helped contain the deficit.

The net merchandise trade deficit contracted to USD 26.6 billion from USD 27.6 billion in August last year. Merchandise exports rose to USD 44.7 billion from USD 35.1 billion, while imports increased to USD 71.3 billion from USD 62.7 billion.

Meanwhile, the services trade surplus expanded to USD 16.5 billion in August from USD 15.6 billion in the corresponding period of the previous year. Services exports advanced to USD 35.5 billion from USD 31.2 billion, outpacing services imports, which stood at USD 18.9 billion. Net transfers, primarily comprising private remittances, rose to USD 12.8 billion.

For the cumulative April–August stretch, however, the CAD widened to USD 18.3 billion, compared to USD 12.8 billion in the prior-year period, underscoring ongoing merchandise trade pressures over the five-month span.

Significance for Domestic Markets

The substantial BoP surplus reinforces India's foreign exchange reserves and provides the RBI with significant leeway to manage currency volatility. For equity and debt market participants, a well-cushioned external balance lowers the sovereign risk premium, sustains banking system liquidity, and offers a reassuring macro backdrop amid shifting global monetary conditions.

Tags: Reserve Bank of India Indian Rupee Banking Sector FDI BOP Services Sector