The latest data from the Reserve Bank of India (RBI) shows why the government and central bank are so concerned about dollars flowing out of the country: the total amount of dollars flowing out of the country exceeded inflows by $30.8 billion in 2025-26, a more than six-fold increase over 2024-25. This Balance of Payments (BoP) had been a surplus as recently as 2023-24.

The data in the RBI’s annual report for 2025-26, released on Friday (May 29, 2026), shows that the BoP deficit grew in 2025-26 because of a sharp fall in net foreign investments into India, which compounded a widening trade deficit. Further, the deficit in 2025-26 was entirely paid for using the RBI’s foreign exchange reserves, denting them significantly. 

The overall Balance of Payments is a combination of the Current Account and the Capital Account. The Current Account captures India’s trade in goods and services as well as some cross-border financial transactions. The capital account largely deals with investments, both direct and portfolio, external borrowings, external assistance, and asset transfers.

Current problems

India generally runs a current account deficit (CAD) since it imports more than it exports. Over the last five years, this CAD has varied significantly, but came in at a three-year high of $30.2 billion 2025-26. 

India’s overall merchandise trade deficit — the amount that imports exceeded exports — stood $251.6 billion in 2025-26, down from $286.9 billion in the previous year. 

On the other hand, the surplus on India’s ‘invisibles’ trade, which includes the services trade, fell to $221.4 billion in 2025-26 from $263.9 in 2024-25. 

In other words, the services surplus shrank more than the merchandise deficit did, meaning that the overall current account saw its deficit widen. 

Capital concerns

In 2023-24, when India had a BoP surplus, this was because the surplus on the capital account was so big, it dwarfed the CAD. That is, the CAD was $26.1 billion in 2023-24, but the capital account surplus was $89.4 billion. As a result, the BoP surplus was $63.7 billion.

This scenario did not play out in 2025-26. The capital account surplus that year shrank to $72 million, down more than 99.5% over the $16.6 billion seen in 2024-25. 

The big reasons for this seems to have been Indians parking their funds abroad and payments related to trade, even though the financial year 2025-26 included just one month of the ongoing crisis in West Asia. 

The ‘other capital’ heading, which includes delayed export receipts, advance payments for imports, and net funds held abroad, stood at a deficit of $22.6 billion in 2025-26, up from a deficit of $7.4 billion in the previous year.

The other factor driving the capital account deficit was the outflow of foreign portfolio investments. According to the data, foreign portfolio investors (FPIs) pulled out $4.3 billion more in 2025-26 than they put in. This reversed the trend of the previous two years where FPI inflows exceeded outflows. 

India seek to stem dollar outflows

All of this data provides the backdrop for Prime Minister Narendra Modi’s exhortation earlier this month for Indians to reduce their fuel consumption and gold purchases. India imports nearly 90% of its oil requirement, and does not produce any gold of its own, although its gold demand is very big. 

As a result, a large part of the dollar outflows go in paying for oil and gold imports. 

The government earlier this month also hiked the import duty on gold and silver to 15% from the previous 6%, and also restricted the import of most kinds of silver. 

Further, oil marketing companies have hiked the prices of petrol and diesel by an average of Rs 7.5 per litre each over four tranches starting May 15.