Economists Predict Rising Crude Prices Will Exacerbate India's Current Account Deficit

India's Economy Faces Growing External Pressures

India's efforts to curb gold imports through increased duties and tighter import norms may not be sufficient to shield the economy from escalating external sector pressures. According to Emkay Global, the country's current account deficit (CAD) could widen beyond 2 percent of GDP in FY27 if crude oil prices remain elevated.

Emkay Global maintains its FY27 CAD-to-GDP forecast at 1.7 percent, assuming average Brent crude prices of $80 per barrel. However, the brokerage warns that risks of the deficit widening beyond 2 percent are increasing as oil prices remain above $100 per barrel.

Barclays echoes concerns around India's external balances, stating that elevated international gold prices may neutralize the impact of recent import curbs. The brokerage notes that while the government aims to curb gold demand by increasing import duties, elevated international prices will likely outweigh any reduction in volume demand, resulting in a continued elevated gold import bill.

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To address the widening current account deficit, Barclays suggests that policymakers also need to address weakening capital inflows to ease balance of payments pressures. Specifically, the brokerage recommends measures such as allowing state-owned lenders to raise foreign currency bonds and harmonizing withholding tax on foreign investment inflows.

In response to growing external pressures, the government recently increased import duties on gold and silver to 15 percent from 6 percent and tightened norms for some silver shipments. However, Barclays revised its FY27 CAD forecast to 1.8 percent of GDP from 1.6 percent earlier and projected a balance of payments deficit of $50 billion in the current fiscal, warning of continued pressure on the rupee.

Current Account Deficit and Balance of Payments Comparison

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India's merchandise trade deficit widened sequentially to $28.4 billion in April from $20.7 billion in March, surpassing market expectations. The country's CAD, or current account deficit, is the gap between the money flowing out of a country for imports of goods, services, and transfers, and the money coming in through exports, remittances, and investments.

Gold imports rose 81.7 percent year-on-year in April, rebounding from a contraction in March, while oil imports climbed sequentially amid elevated prices. Emkay Global expects the latest curbs to reduce gold import volumes by around 20-25 percent in FY27, although higher global bullion prices could offset part of the gains.

Industry executive Ankur Daga, co-founder of Angara, notes that consumer demand may moderate in the near term, but India's structural appetite for gold is unlikely to weaken significantly. Daga suggests that consumers may shift toward lighter jewelry, exchange old jewelry, or prefer gemstone-studded products to manage higher prices, but underlying demand remains intact.

RBI data shows that India's current account deficit stood at 1 percent of GDP during April-December FY26. Brent crude prices are currently hovering around $110 per barrel amid persistent supply concerns from the Middle East, while the rupee has slipped to record lows near 96.5-97 against the US dollar due to rising oil prices and continued foreign fund outflows.