India's solar energy demand is projected to grow at a 22% compound annual growth rate (CAGR) over FY26-35E, driven primarily by the rapid expansion of power-intensive data centers. According to a report by Nuvama, the country's total power consumption, which stands at approximately 1,848 billion units (BU), is expected to reach nearly 3,228BU by FY35. This represents an incremental demand of more than 1,380BU over the next decade. In a bull case scenario, solar demand could see an even higher growth rate of 25% CAGR. The solar share in total power consumption is projected to rise from 9% in FY26 to 33% by FY35, with potential to reach 37% in a bull case scenario. This structural shift in the energy mix will significantly elevate solar power's position within the national grid.
Goldman Sachs has turned more constructive on India's external sector outlook, predicting the country's balance of payments will shift to a surplus in 2026 after two consecutive years of deficits. According to the investment bank's latest report, "India: A More Favourable Balance of Payments Outlook," India posted a balance of payments surplus of $7.2 billion in the first quarter of calendar year 2026, despite concerns over softer capital inflows and higher energy prices. The report noted that the INR's recent weakness appears larger than what balance of payments fundamentals would suggest, with the currency pressure driven more by precautionary and speculative demand for dollars amid heightened geopolitical uncertainty than by deterioration in India's fundamental external position. The apparent divergence between INR weakness and strong underlying BoP fundamentals suggests recent currency pressure was driven more by precautionary dollar demand amid heightened West Asia's uncertainty than by a deterioration in external fundamentals.
India posted a current account surplus of $7.0 billion in Q1 CY26, significantly exceeding Goldman Sachs' expectation of a deficit. As reported by the investment bank, this surplus was supported by lower-than-expected oil imports, stronger remittances and robust services exports. The report highlighted that India's vulnerability to oil price shocks has declined over time, with oil import volumes becoming increasingly responsive to higher crude prices. With Brent crude averaging around $90 per barrel in 2026, Goldman Sachs estimates that a 10 per cent price rise is associated with around a 6 per cent decline in net import volumes, helping offset part of the impact of higher oil prices on the trade balance. The investment bank noted that India's oil intensity has declined steadily over the past three decades, reflecting improvements in energy efficiency, greater electrification of transportation and a gradual shift towards less energy-intensive sources of growth. Post-pandemic, oil import volumes also appear more price-sensitive, with volumes now declining more when oil rises above $80/bbl.
Following stronger-than-expected external sector data, Goldman Sachs has revised its current account deficit forecast sharply lower. The investment bank now expects India's current account deficit to narrow to 1.3 per cent of GDP in CY26 and 1.7 per cent of GDP in FY27, compared with its earlier estimate of $78 billion, or 2.0 per cent of GDP. According to the report, "Taken together, we revise our current account deficit forecast for CY26 to $46bn (1.3 per cent of GDP), vs. $78bn (2.0 per cent of GDP earlier)." The report noted that policymakers have historically used import duties to manage external pressures, with higher import duties typically followed by a decline in gold import volumes after a one-to-two-month lag, becoming fully visible over five to six months. Goldman Sachs expects gold import duties to weigh on volumes with a lag, as historically duty hikes have begun to weigh on gold import volumes with a 1-2 month lag.
Goldman Sachs expects recent measures announced by the Reserve Bank of India and the government to support foreign capital inflows. These include incentives for foreign currency non-resident deposits, concessional swap facilities for external commercial borrowings and tax benefits for foreign investors in government securities. As reported by the investment bank, "The RBI's comprehensive set of measures to incentivize dollar inflows, including concessional forex swap rates for banks and quasi-sovereigns to raise USD funding, together with exemptions on interest and capital gains tax on G-Sec for FPIs, should underpin capital inflow revival and support the INR." The report expects India to record a balance of payments surplus of around 0.6 per cent of GDP in CY26 and FY27 each, with the improved external position helping lower depreciation pressures on the rupee while not expecting significant appreciation. With an estimated $60bn of additional inflows from these measures, Goldman Sachs expects India to record a BoP surplus of around 0.6 per cent of GDP in CY26 and FY27 each.
The report paints a more favourable picture of India's external accounts, supported by resilient remittances, strong services exports, lower oil intensity and policy measures aimed at attracting foreign capital. According to Goldman Sachs, these factors will help India maintain a stronger balance of payments position despite global uncertainties. The investment bank believes that while the improved external position should ease depreciation pressures on the rupee, a sharp appreciation is unlikely because the RBI is expected to absorb much of the incoming foreign exchange through reserve accumulation. As noted in the report, "An improved balance of payments outlook should help lower depreciation pressures on the INR. While the currency appears broadly fairly valued on a trade-weighted basis, we expect any renewed dollar inflows to be largely absorbed by the RBI through reserve accumulation and unwind the short forward book, limiting the scope for significant appreciation."
