New Delhi, Aug 18: India could witness a sharp turnaround in foreign capital flows in 2026-27, with capital account inflows projected to rise to around $120 billion, according to Kotak Institutional Equities. The expected increase could significantly strengthen India’s external position and provide greater stability at a time when global economic conditions remain uncertain.
Capital account flows are estimated to rise dramatically from around $2 billion in FY26 to $120 billion in FY27. The expected improvement is largely linked to stronger banking capital and higher external commercial borrowings.
Banking capital could contribute around $80 billion, including nearly $70 billion through FCNR(B) deposits. Another $20 billion could come from external commercial borrowings.
The projected inflows could provide an important cushion for India as the country faces pressure from a potentially wider current account deficit. Kotak expects the stronger capital flows to more than offset this pressure, with India potentially recording a balance of payments surplus of about $61 billion in FY27.
The improvement could have practical benefits for businesses and the wider economy. Greater availability of foreign currency can support international trade, strengthen financial liquidity and help companies with overseas funding requirements manage external risks more comfortably.
At the same time, higher crude oil prices remain a concern. India’s dependence on imported energy means a sustained rise in oil prices could increase the import bill and put pressure on the current account. Kotak has estimated the FY27 current account deficit at around 1.2 per cent of GDP, compared with 0.6 per cent in FY26.
Not all foreign investment flows, however, are expected to strengthen. Net foreign direct investment could remain relatively subdued as overseas investments by Indian companies and exits by private equity and venture capital investors continue to influence the overall flow of funds.
Foreign portfolio investment may also remain unpredictable. Global interest rates, market valuations and investor confidence will continue to influence how overseas investors allocate money to Indian assets.
Recent developments nevertheless point to stronger interest in Indian financial markets. Foreign investors have returned to Indian equities in August, while Indian banks are also accelerating overseas fundraising following strong foreign-currency inflows.
The Reserve Bank of India’s special measures have already attracted substantial foreign-currency inflows through FCNR(B) deposits, encouraging banks to bring forward their overseas fundraising plans.
For India, the potential jump in capital flows represents an important opportunity to strengthen its external financial safety net. A healthier balance of payments can provide greater resilience against fluctuations in oil prices, global interest rates and sudden shifts in investor sentiment.
If the projected inflows materialise, FY27 could mark a significant strengthening of India’s external finances, giving businesses, investors and policymakers greater confidence as the economy navigates an increasingly uncertain global environment.