HSBC Forecasts Sharp Widening of India's External Deficit on Oil and Remittance Risks in Fiscal Year 2027

HSBC Warns India's Current Account Deficit to Widen Sharply to 2.3% of GDP

India's current account deficit is expected to widen sharply to 2.3% of GDP in FY27 from around 0.9% in FY26, according to HSBC Global Research. Elevated crude oil prices, weaker exports to the Middle East, and slowing remittance inflows are straining the country's external balances.

HSBC estimates that India could face a balance of payments (BoP) deficit of nearly USD 65 billion next fiscal if external pressures persist. The oil shock is emerging as the single biggest risk to the macro outlook.

India's Oil and Gas Import Bill to Rise to USD 226 Billion

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

HSBC expects India's oil and gas import bill to rise to nearly USD 226 billion in FY27 from around USD 174 billion in FY26, assuming Brent crude averages around USD 95 per barrel through the year. The brokerage estimates that every 10% rise in oil prices widens India's current account deficit by roughly 0.3 percentage points of GDP.

The warning comes amid continuing disruptions in West Asia that have pushed up global energy prices, increased shipping risks, and renewed pressure on emerging-market currencies, including the rupee.

While India's oil intensity of growth has structurally declined over the years, HSBC said the scale of the current energy shock remains large enough to materially worsen the country's external balances.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Rising Risks to Export Earnings

The Middle East currently accounts for nearly 17% of India's non-oil exports, including sectors such as electronics, machinery, cereals, and vehicles. HSBC estimates that if exports to the region decline by an average 20% this year, India's core exports could weaken by around 0.3 percentage points of GDP.

Imports linked to the region are also not limited to crude oil alone. HSBC noted that India remains dependent on the Middle East for several industrial inputs, including petrochemicals, sulphur, and aluminium, raising the risk of imported inflation even if domestic demand conditions soften.

Remittances Emerge as Pressure Point

India receives inward remittances of nearly USD 135 billion annually, with around 38% originating from the Middle East, according to HSBC. The brokerage said prolonged weakness across Gulf economies, especially in sectors such as construction, oil services, hospitality, and retail, could materially hurt remittance inflows into India.

HSBC is currently building in a 10% decline in remittances for FY27 under its base-case assumptions.

Government Responds to Pressure on Rupee and External Deficit

Over the past week, the government raised the effective import duty on gold and silver, tightened gold imports under the Advance Authorisation Scheme, restricted some silver imports, and increased petrol and diesel prices by Rs 3 per litre. Prime Minister Narendra Modi has also publicly urged citizens to reduce discretionary imports and overseas spending, including gold purchases and foreign travel, as part of broader efforts to conserve foreign exchange and curb non-essential dollar outflows.

The measures are aimed at slowing pressure on India's import bill at a time when higher crude prices and shipping disruptions threaten to widen the trade deficit further.

Markets React to Changing Macro Backdrop

The rupee has remained under pressure against the US dollar in recent sessions, while sectors sensitive to imported inflation and fuel costs have witnessed bouts of volatility. Domestic gold prices have also surged following the import duty hike, with higher landed costs feeding quickly into local premiums and retail prices.

At the same time, domestic institutional investors (DIIs) have continued buying on dips, cushioning benchmark indices from sharper corrections even as foreign portfolio flows remain volatile amid a broader global risk-off environment.

HSBC Warns of Further Policy Measures

HSBC said further policy measures may become necessary if oil prices remain elevated for a prolonged period. The brokerage pointed to 2022 as a reference point, when cumulative fuel price hikes helped reduce India's net oil import bill by nearly USD 20 billion over the following year, suggesting that additional fuel price adjustments could again play a role in easing external pressures if crude prices stay high.