India current account deficit: FY27 risk above 2% GDP

Why the FY27 CAD debate has intensified

India’s efforts to curb gold imports through higher duties and tighter norms may not be enough to prevent a wider current account deficit (CAD) in FY27, as crude oil and bullion prices remain elevated. Emkay Global warned that risks of CAD moving beyond 2% of GDP are rising if Brent crude stays above $100 per barrel. Barclays, separately, said elevated international gold prices could blunt the impact of import curbs even if volumes fall. The broader concern is that higher import bills can widen the trade deficit and keep pressure on the rupee, particularly if capital flows turn less supportive. Economists also point to the West Asia conflict and shipping disruptions as a key driver of the current external-sector stress. The result is a wider range of FY27 CAD estimates, with several forecasters now clustering around the 1.7% to 2.4% of GDP band.

Emkay Global’s base case and the “above 2%” risk

Emkay Global said it is maintaining its FY27 CAD-to-GDP forecast at 1.7% under an assumption of average Brent at $10 per barrel. But it also flagged that risks are rising as crude remains above $100 per barrel. Emkay noted that it had earlier pegged FY27 CAD at 1.3% when Brent was assumed at $10 per barrel, implying the oil price assumption has a direct and sizeable impact on the external balance. In its sensitivity estimate, Emkay said every $10 per barrel rise in Brent could widen CAD by 0.45 percentage points. The brokerage’s message is that even if policy tries to curb non-essential imports such as gold, the oil shock can dominate the overall picture. This matters because India imports more than 85% of its crude oil requirements, increasing dollar outflows when global prices rise.

Barclays: gold duty hikes may not cut the import bill

Barclays said higher import duties and tighter norms are intended to curb gold demand, but elevated international prices could keep the gold import bill high even if volumes slow. In its note, Barclays argued that global price strength could outweigh a likely dampening in volume demand. It revised up its FY27 CAD forecast to 1.8% of GDP from 1.6% earlier. Barclays also projected a $10 billion balance of payments deficit in the current fiscal, warning of continued pressure on the rupee. On volumes, Barclays expects the latest curbs to reduce gold import volumes by around 20% to 25% in FY27, while adding that higher bullion prices could offset part of the benefit.

What changed on policy: gold and silver import duty

The policy backdrop includes a sharp increase in import duty on gold and silver. The government raised the import duty on gold and silver from 6% to 15%, which has already made domestic gold costlier, according to the reports. Separately, the context also notes that customs duty on gold was cut from 15% to 6% in July 2024 to encourage legal imports and curb smuggling, and that the CAD impact remains a concern when external prices spike. Prime Minister Narendra Modi also urged households to defer non-essential gold purchases for a year and conserve fuel, linking household demand to foreign exchange pressures. The Global Trade Research Initiative (GTRI) backed the appeal, arguing that rising bullion imports are hurting foreign exchange reserves and the trade balance.

Trade deficit signals: April deterioration and oil-led pressure

Recent monthly trade data has reinforced the near-term pressure. ICICI Bank Global Markets pointed to a widening gap that pushed India’s goods trade deficit to $18.4 billion in April from $10.7 billion in March. Within this, the oil deficit rose to $1.0 billion, while the non-oil non-gold deficit expanded to $13.7 billion sequentially. Including services, the overall goods and services balance widened to a $1.8 billion deficit from a mild $1.3 billion surplus in March. The ICICI assessment added that resilient services exports should offer some cushion, but it still sees CAD settling in the 1.5% to 2% of GDP range if non-essential imports are contained and capital inflows improve when global risk sentiment stabilises.

FY27 forecast range: from 1.5% to 2.4% of GDP

Economists and brokerages have published a wide range of FY27 CAD projections as the oil shock evolves. Crisil projected FY27 CAD at 2.2% of GDP, up from 0.8% in FY26, and revised its Brent forecast to $10 to $15 per barrel from $12 to $17 earlier. IDFC First Bank’s chief economist Gaura Sen Gupta said CAD could widen to around 2.4% of GDP in FY27 if crude averages about $10 a barrel, up from roughly 0.9% in FY26. Icra’s Aditi Nayar put a 1.7% of GDP baseline scenario for FY27 if crude averages $15. Bank of Baroda’s Madan Sabnavis estimated CAD could be in the 1.5% to 2% range, driven by a wider trade deficit and lower remittances from the Gulf. Canara Bank’s Madhavan G Kutty said that with crude likely in the $100 to $110 range even if a ceasefire ends, and a 10% fall in merchandise exports with remittances assumed unaffected, CAD could widen to 1.8% to 1.9% in FY27.

RBI data shows CAD had already widened in FY26

The oil-driven risk is being read against a backdrop of a wider CAD already visible before the latest spike. RBI data cited in the reports showed India’s CAD at $13.2 billion or 1.3% of GDP in the October to December quarter of FY26, compared with $11.5 billion in the previous quarter. This change matters because it suggests that external balances were deteriorating even before assumptions of sustained crude above $100. Market participants have also linked the CAD risk to potential rupee pressure and inflation, given India’s import dependence for energy.

Market impact: rupee pressure, import compression, and inflation pass-through

A wider CAD can translate into higher demand for dollars, adding pressure on the rupee if capital inflows do not fully offset the deficit. Barclays explicitly warned of continued pressure on the rupee alongside its projected $10 billion balance of payments deficit. Economists also flagged the risk of fuel price pass-through if elevated crude persists. RBI Governor Sanjay Malhotra said fuel price hikes may become unavoidable if the West Asia crisis continues for a prolonged period, indicating that the strategy of shielding consumers may not be sustainable indefinitely. Dr Manoranjan Sharma of Infomerics Ratings said a fuel price hike becomes increasingly likely if disruptions continue, and that initial increases could range between Rs 2 and Rs 5 per litre, depending on crude prices and tax adjustments, though petrol and diesel prices remain unchanged for now.

Key numbers to track

Why gold curbs may not be enough

The core issue is that policy curbs typically target volumes, while the import bill depends on both volumes and prices. Barclays’s argument is that elevated international gold prices can keep the bill high even if demand volumes cool. At the same time, crude oil remains the dominant swing factor in India’s import bill, and several forecasters have anchored their FY27 CAD projections to oil scenarios from $10 to $100-plus per barrel. Sensitivity estimates reinforce this: Emkay estimates 0.45 percentage points of CAD widening for every $10 rise in Brent, while economist Santosh Mehrotra said CAD widens by about 0.3% of GDP for every $10 increase in oil prices. Taken together, the reports suggest that import compression alone may not offset price shocks if crude and bullion stay firm simultaneously.

Conclusion

Brokerages and economists are converging on a clear message for FY27: gold import restrictions may reduce volumes, but elevated crude and bullion prices can still push India’s CAD higher, potentially beyond 2% of GDP in adverse oil scenarios. Forecasts range from 1.5% to 2.4%, with several estimates rising as Brent assumptions move toward $10 to $100-plus levels. Near-term trade data has already shown deterioration in April, and policymakers have started signalling that prolonged high crude could force more difficult choices on pricing and import management. The next key inputs will be the trajectory of the West Asia conflict, crude prices, and how effectively non-essential imports are contained without disrupting domestic demand.