India Viewpoint: The problem of the Rupee: Fixing the flow, safeguarding the stock (Part 3)

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India Viewpoint: The problem of the Rupee: Fixing the flow, safeguarding the stock (Part 3)

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India Viewpoint

The problem of the Rupee: Fixing the flow,

safeguarding the stock (Part 3)

India’s BoP problem remains visible on both counts 26 May 2026

In the first two parts of our report series, we have established that India’s balance of GEM Economics

payments has been impaired, partly due to structural issues on the capital & financial Asia | India

account, and partly driven by cyclical headwinds on the current account. Put together, Rahul Bajoria

these two dynamics have impaired the balance of payments flow, resulting in India & ASEAN Economist

exaggerated exchange rate weakness, and casting doubts on the ability of the BofAS+91 22India6632 3095

policymakers to stabilize the exchange rate. In the final report of our series, we explore rahul.bajoria@bofa.com

India’s stock position of its external balance sheet, i.e. the international investment Smriti Mehra

position, its reserve adequacy, and assess whether and how India can solve the problem IndiaBofASEconomistIndia

of the rupee, whether it is fixing its current account funding needs, or finding more smriti.mehra@bofa.com

capital flows.

A healthy stock position GlossaryBoP: Balance of Payment

Despite the recent external headwinds, India has seen considerable improvement in its CY: Calendar Year

external balance sheet, which has improved to a 16-year high, and the improvement in ECB: External commercial borrowing

FCNR: Foreign currency non-resident

recent years has been driven by a reduction in liabilities, which implicitly corroborates account

foreign investors lightening up on Indian assets, as discussed in our first part (see FDI: Foreign direct investment

Examining the capital flows paradox).