Why CEA Anantha Nageswaran says India is facing a ‘Live Balance of Payments Stress Test’
The Balance of Payments (BoP) is essentially a record of all financial transactions between India and the rest of the world. It tracks how much money comes into the country through exports, foreign investments, remittances and loans, and how much money goes out through imports, overseas investments, debt repayments and travel expenses. While a healthy BoP will help maintain currency stability and strong foreign exchange reserves, a deficit could weaken the rupee and trigger inflationary pressure.
India’s heavy dependence on imported energy makes the situation particularly serious. The country imports about 90% of its crude oil and about half of its gas needs. As global crude oil prices rose due to geopolitical tensions in the Middle East and disruptions around the Strait of Hormuz, India’s import bill also rose sharply. Since oil purchases are made in dollars, the increase in demand for foreign currency weakens the rupee and makes imports more expensive.
Economists say the stress test is intensifying because many economic pressures are occurring simultaneously. India is heavily dependent on the Middle East, not only for oil and gas, but also for fertilizer inputs, remittances from Indian workers abroad, and export markets. Therefore, any instability in the region directly affects the Indian economy.
According to a report by JPMorgan, capital inflows into India have slowed down significantly. Net capital inflows averaged 2.6% of GDP between 2015 and 2019, but fell to 1.4% in 2024 and almost disappeared in 2025 due to reduced foreign direct investment and continued sales by foreign portfolio investors.
At the same time, India’s current account deficit is also expected to increase significantly. Economists estimate that this figure could rise to 2.5% of GDP in FY27, compared to 0.9% in the previous year. The overall BoP deficit could widen to between $65 billion and $70 billion, marking the third consecutive deficit year. India currently faces the dual challenge of attracting sustainable capital inflows while reducing its current account deficit, HSBC said.
This pressure is already visible in trade data. India’s commodity trade deficit widened to $28.38 billion in April as crude oil imports hit a six-month high. Foreign investors have withdrawn more than $20 billion from Indian stocks since Iran-related tensions have escalated, putting further pressure on the rupee, which has lost more than 5 percent of its value since the conflict intensified.
The last time India experienced consecutive BoP deficits of this scale was after the global oil shocks of the 1970s. Economists often compare the risks to earlier crises, such as the 1991 balance of payments crisis, when India’s foreign exchange reserves fell dangerously low.
Nageswaran believes the current challenge is structural, not temporary. He identified four major global changes that are reshaping the world economy: geopolitical fragmentation, technology bifurcation, energy transition policies, and increasing geopolitical risks. According to him, India needs to be prepared for a prolonged period of uncertainty affecting trade, capital flows and energy security.
CEA said despite the pressure, India still has strong fundamentals, including fiscal consolidation, infrastructure investments and reforms undertaken in recent years. However, he emphasized that managing the current account, financing deficits and preventing further depreciation of the rupee will remain India’s top macroeconomic priorities in FY27.
