Gross FDI inflows increased to $30.7 billion during April-June 2026 from $26.7 billion a year earlier, while foreign portfolio flows staged a turnaround in June-July.
India continued to attract strong foreign capital flows despite a turbulent global environment, with gross foreign direct investment (FDI) inflows rising to $30.7 billion during April-June 2026, according to Reserve Bank of India Governor Shaktikanta Das.
Delivering the monetary policy statement on Wednesday, Das said gross FDI inflows were higher than the $26.7 billion recorded in the corresponding period last year, underscoring continued interest among global investors in India.
Net FDI inflows also increased during the period, supported by higher gross investments and a slowdown in the growth of outward FDI.
Foreign portfolio investment (FPI) flows, meanwhile, staged a turnaround during June-July after witnessing net outflows in the first two months of the financial year.
India received net FPI inflows of $7.1 billion during June-July 2026, primarily driven by investments in the debt segment. The RBI said capital-flow measures undertaken in June also supported foreign investment.
Against this backdrop, the central bank expects India’s balance of payments (BoP) to register a healthy surplus in 2026-27.
Trade deficit widens sharply in Q1
The positive capital-flow picture comes even as India’s merchandise trade deficit widened significantly during the first quarter.
The merchandise trade deficit increased to $86.6 billion in Q1 FY27 from $68.7 billion in the year-ago quarter, largely because of higher imports of crude oil, electronic goods and gold.
More from BusinessIndia’s current account position, however, has remained relatively comfortable.
The current account recorded a surplus of $2.8 billion during April-May 2026, supported primarily by a robust services trade surplus and strong remittance receipts.
The RBI said India’s current account deficit during 2025-26 also remained modest and well below levels generally considered sustainable for emerging-market economies.
Oil prices and trade uncertainty pose risks
The central bank cautioned that the external-sector outlook is not without risks.
Slowing global trade growth, a surge in energy prices and persistent uncertainty surrounding global trade policies could put upward pressure on India’s current account deficit during FY27, the RBI said.
Higher crude oil prices are particularly significant for India because of the country’s dependence on imported energy and could simultaneously increase the merchandise import bill and widen the current account deficit.
However, the RBI expects several factors to provide a cushion against these pressures. The implementation of the India-UK trade agreement, alongside other recent trade agreements with major partners, healthy services exports and buoyant inward remittances, could help mitigate external-sector risks.
Forex reserves provide external buffer
India’s foreign exchange reserves also remain comfortable according to conventional reserve-adequacy indicators.
The country’s forex reserves currently provide more than 10 months of import cover and cover 90.8 per cent of India’s external debt, according to the central bank.
On the rupee, the RBI reiterated that the exchange rate would continue to be determined by market forces.
At the same time, the central bank said it would intervene when necessary to curb excessive volatility, check speculative behaviour and prevent disorderly movements that could push the exchange rate out of sync with economic fundamentals or disrupt economic activity.
The combination of stronger FDI, returning portfolio flows, robust services exports and remittances provides a buffer for India’s external sector, even as a widening merchandise trade deficit and elevated global energy prices emerge as key risks for FY27.
