India’s balance of payments position strengthened sharply in July as a surge of NRI deposit inflows to $33.5 billion helped drive the capital account surplus to $27.7 billion, more than offsetting a wider current account deficit, according to preliminary data released by the Reserve Bank of India on Tuesday.

India’s current account deficit widened to $7.0 billion in July 2026 from $3.2 billion a year ago, primarily reflecting a larger merchandise trade gap. The deficit was equivalent to a sharp increase from the year-ago level, as the capital account surplus jumped to $27.7 billion from $3.5 billion, resulting in an overall balance of payments surplus of $20.8 billion, compared with $0.3 billion in July 2025.

The merchandise trade deficit widened to $31.7 billion from $28.2 billion a year earlier. Merchandise exports rose to $45.1 billion from $37.4 billion, but imports increased to $76.8 billion from $65.6 billion. The services surplus provided some offset, rising to $17.6 billion from $16.4 billion, while net transfers increased to $13.2 billion from $12.6 billion.

Capital flows were led by a sharp increase in banking capital. Net NRI deposit inflows surged to $33.5 billion in July from $1.0 billion a year earlier, accounting for a substantial part of the increase in the capital account surplus. Banking capital as a whole rose to $18.4 billion from $6.0 billion.

The sharp rise in NRI deposits came after the RBI introduced a swap window for FCNR(B) deposits, aimed at attracting foreign currency inflows into the banking system. The central bank also provided similar swap facilities for external commercial borrowings and overseas foreign currency borrowings.

Banks mobilised $127.2 billion in FCNR(B) deposits under the RBI’s swap facility, which closed on August 31, with nearly half of the inflows coming during the final 10 days. Total inflows under the broader swap facility stood at $136.38 billion as of August 31.

Foreign investment flows also improved. Net FDI inflows rose to $7.3 billion from $4.5 billion, while FPI flows reversed to a $4.1 billion net inflow from a $2.5 billion outflow in July 2025. The reversal in portfolio flows provided an additional source of financing for the wider current account gap.

The improvement in July helped strengthen the cumulative external position, although the current account remained under pressure in the first four months of the financial year. April-July current account deficit widened to $11.2 billion from $6.6 billion a year earlier, with the merchandise trade deficit increasing to $117.8 billion from $97.1 billion. The services surplus, however, rose to $69.3 billion from $64.3 billion.

The April-July capital account surplus rose to $23.9 billion from $11.4 billion, supported by higher FDI inflows of $13.4 billion versus $9.7 billion. However, cumulative FPI flows remained negative, with a $5.5 billion net outflow compared with a $0.9 billion outflow a year ago.

Overall, the April-July BoP balance stood at a $12.7 billion surplus, compared with $4.8 billion a year earlier. The data suggests that stronger capital inflows, particularly through NRI deposits and banking capital, provided a significant cushion against the widening merchandise trade and current account deficits.