India has faced persistent challenges with its capital account, as highlighted by DBS economist Radhika Rao, who points to weakening capital flows, softer foreign portfolio inflows, and a narrower net Foreign Direct Investment (FDI) position. These factors collectively pushed India's balance of payments into a deficit during FY26, accompanied by a moderation in offshore borrowings [1]. Early FY27 saw sizeable equity outflows, though there has been some recovery in Foreign Portfolio Investment (FPI) debt and FDI inflows [1].
In response to these pressures, the Reserve Bank of India (RBI) and the government introduced a series of measures in June 2026 aimed at supporting capital inflows. While the specific measures were not detailed in the source, their implementation reflects a concerted effort to stabilize the external balance [1].
On the monetary policy front, inflation risks are now seen as being driven more by geopolitical factors than by monsoon-related concerns, according to DBS. As a result, the bank has removed its rate hike forecast for FY27 and anticipates downside risk to its end-year 10-year yield forecast of 6.9% [1].
Fiscal policy is also expected to be impacted, with the need to accommodate higher subsidies and lower revenue growth likely resulting in a modestly wider fiscal deficit in FY27 [1].
CONCLUSION
India's capital account has come under pressure due to weakening inflows, prompting the RBI and government to take action in June 2026. While some recovery in FPI debt and FDI is noted, fiscal and monetary policy adjustments are expected as authorities work to stabilize the external balance. The overall market sentiment remains cautious, with medium impact anticipated.