Goldman Sachs has significantly revised India's current account deficit (CAD) projection downward to 1.3% of GDP for 2026, down from its earlier estimate of 2%, marking a substantial improvement in the country's external position outlook. According to Goldman Sachs reports, this revision reflects a fascinating shift in India's external position, with the country expected to achieve a balance of payments (BoP) surplus of 0.6% of GDP within the next two years, following two consecutive years of deficits. The investment bank attributes this remarkable turnaround to a combination of increased capital inflows and India's growing resilience to oil price fluctuations.
According to Crisil reports, India's current account deficit (CAD) is projected to rise to 2.2% of GDP from 0.6% in fiscal 2026 as Brent crude prices are expected to average $90-95 per barrel this fiscal, representing a 32% increase compared to fiscal 2026. The rating agency warns that higher oil prices will exert greater pressure on the CAD, with oil remaining the biggest source of the goods trade deficit at 36% in fiscal 2026. However, Goldman Sachs notes that higher oil prices will likely widen India's current account deficit, but the deterioration is expected to be less severe than in past energy shock episodes due to India's lower oil intensity, improved energy efficiency, and greater responsiveness of oil demand to increasing prices. Despite expected resolution of geopolitical uncertainties in West Asia, energy prices are anticipated to remain elevated as it will take several months for supplies to normalise fully.
India's merchandise trade deficit increased to $28.2 billion in May 2026 from $22.6 billion a year ago, with exports facing a broad-based 18% acceleration year-on-year to $45.2 billion in May, compared with 13.8% to $43.6 billion in April. As reported by Crisil, petroleum exports increased 54.9% as against 34.6% and core exports rose 12.3% ($34.2 billion) compared with 10.4% ($31.6 billion). The on-year jump in petroleum exports was attributed to a statistical low-base effect and reflected the 66.2% year-on-year increase in Brent crude prices in May. Merchandise imports surged 20.6% on-year to $73.4 billion after 10.0% growth to $71.9 billion in April, with the trade deficit narrowing slightly from $28.4 billion in April.
A key factor driving Goldman Sachs' revised outlook is the Reserve Bank of India's (RBI) recent measures to encourage foreign currency inflows, which could bring in an additional $60 billion during 2026. These measures include incentives for foreign currency non-resident (bank) account deposits, concessional swap facilities for external commercial borrowings, and tax benefits for foreign investors in government securities. According to Goldman Sachs, such substantial capital influx is bound to have a significant impact on the country's external position, contributing to the projected BoP surplus. The rating agency also notes that India's oil exports dropped to $8.4 billion in May from $9.6 billion in April, led by lower crude oil prices on-month after the extraordinary surge in the past two months due to conflict in West Asia.
India's export performance showed mixed results across sectors in May 2026. Gems and jewellery rebounded to 6.7% growth, while core exports (goods excluding oil and gems and jewellery) rose 12.3% to $34.2 billion. The strong performance in petroleum exports was primarily due to a statistical low-base effect from the previous year. As per Crisil reports, outside West Asia, India's exports to the US continued to improve to $8.8 billion versus $8.5 billion in April, reflecting the positive impact of lower tariffs, though the trajectory remains monitorable given continuing uncertainty around tariff levels. Goldman Sachs emphasizes the need for India to continue its efforts to diversify its economy and reduce its reliance on oil imports to maintain this improved external position sustainably.
