Economists have significantly lowered India's FY27 current account deficit forecasts as softer crude oil prices and resilient exports improve the external outlook. Individual estimates now range from 0.9% to 2% of GDP, compared with projections as high as 2.4% before crude oil prices retreated. India's CAD was 0.6% of GDP in FY26, and the latest forecasts represent a substantial improvement from earlier projections. As per Business Standard, the revisions were triggered by a sharp fall in crude oil prices following the de-escalation of tensions in West Asia, with economists also citing resilient services exports and remittance inflows as supporting factors.
India's crude oil basket has declined significantly from $114.5 per barrel in April to $83.22 per barrel in June, and stood at $81.4 per barrel as of July 16. This represents a substantial reduction from Crisil's earlier projection of $82-87 per barrel for the current fiscal year. According to Business Standard, since crude accounts for about 22% of India's import basket, lower oil prices are expected to reduce the import bill substantially. CareEdge Ratings revised its FY27 CAD forecast to 0.8-1.2% of GDP from 2.1%, while IDFC First Bank lowered its crude price assumption to $75-80 per barrel from $90 earlier.
India's trade balance, including both merchandise and services trade, declined to $20.85 billion in the June quarter from $37.4 billion during the same quarter a year ago. This follows the earlier trend of merchandise trade deficit widening to $30.4 billion in June, up from $28.2 billion in May and $19.1 billion in the year-ago period. As reported by The Times of India, imports grew at a faster pace than exports, with merchandise imports surging 31% year-on-year to $70.8 billion in June, accelerating from 20.6% growth in May. However, the recent quarterly data shows some improvement in the overall trade balance.
Services trade offered continued support to the external balance, with preliminary estimates showing services exports growing 2.9% year-on-year in June, while imports rose 12.7%. This pulled the services trade surplus down to $15.1 billion from $16.2 billion a year earlier. According to Business Standard, economists also cited resilient services exports and remittance inflows as supporting factors. CareEdge Ratings noted that resilient services exports and remittances could push the CAD below 1% of GDP if oil prices remain subdued. The export growth slowed to 15.5% year-on-year in June to $40.4 billion, compared to a 18% growth and $45.2 billion in May, but recent forecasts suggest stronger-than-expected exports to Asia and Africa.
Despite differing forecasts, economists broadly agree that India's external position remains comfortable with CAD below 2% of GDP being manageable. However, the key risk is no longer the CAD itself but financing it through stable capital inflows. As per Business Standard, Crisil Chief Economist Dharmakirti Joshi mentioned that the main issue is capital flows, stating that steps by the Reserve Bank of India (RBI) and government should help. The RBI in June announced measures to attract foreign capital, including bearing the full hedging cost on new three- to five-year Foreign Currency Non-Resident (Bank) or FCNR(B) deposits and offering concessional forex swaps for public sector companies raising overseas borrowings. Kotak Mahindra Bank retained its FY27 CAD estimate at 1.5% of GDP, noting that RBI measures have helped bridge the gap with adequate capital flows.
