India’s current account deficit (CAD) is expected to widen to around 2.0 per cent of gross domestic product in both the first quarter and the full fiscal year 2027, ratings agency Icra said in a report, citing elevated crude oil prices and a widening merchandise trade deficit.
The agency said India’s merchandise trade deficit widened sharply to USD 28.4 billion in April 2026 from USD 20.7 billion in March, driven largely by higher imports of crude oil and gold amid the ongoing conflict in West Asia.
Icra expects the CAD to rise to “slightly over” 2.0 per cent of GDP in the April-June quarter of FY2027 after a seasonal narrowing in the final quarter of FY2026. For the full fiscal year, it projected the CAD at around 2.0 per cent of GDP, more than double its estimate of 0.9 per cent for FY2026.
The projections are based on an assumed average crude oil price of USD 95 per barrel during FY2027, the report said.
India’s merchandise exports rose 13.8 per cent year-on-year in April to a 49-month high of USD 43.6 billion, aided partly by higher commodity prices and petroleum shipments, according to the report. Oil exports surged 34.7 per cent year-on-year to USD 9.6 billion, a 24-month high.
However, imports grew 10.0 per cent year-on-year to USD 71.9 billion, marking the second-highest monthly import level on record. Sequentially, imports rose 20.7 per cent in April, nearly double the pace of export growth.
Gold imports jumped 81.7 per cent year-on-year to USD 5.6 billion during the month as prices rose sharply, while crude petroleum and product imports climbed around 53 per cent from March levels on a month-on-month basis.
Icra said nearly 60 per cent of the sequential widening in the merchandise trade deficit between March and April stemmed from higher gold and net crude oil imports.
The agency added that although the government’s increase in customs duty on gold and silver to 15 per cent from 6 per cent could provide some relief, merchandise trade deficits are expected to remain elevated in the near term.
The report also warned that a prolonged conflict in West Asia posed upside risks to oil prices and India’s external balances. West Asia accounts for around 14 per cent of India’s exports and nearly 20 per cent of imports, while roughly 40 per cent of inward remittances originate from the region.
According to Icra’s analysis, every USD 10 per barrel increase in average crude oil prices above its baseline assumption could widen India’s CAD by 30-40 basis points in a fiscal year.
Trade flows with key West Asian economies showed mixed trends in April. Exports to the UAE and Saudi Arabia improved sequentially to USD 3.0 billion from a multi-year low in March, although they remained nearly 30 per cent lower than a year earlier. Imports from the two countries declined 13.8 per cent year-on-year to USD 7.9 billion, reflecting higher energy prices.
Icra also flagged concerns over the rupee and foreign exchange reserves amid the expected deterioration in India’s balance of payments position.
The Indian rupee weakened to a record low beyond 96 against the U.S. dollar intraday on May 15, according to the report, while India’s forex reserves stood at USD 697.0 billion as of May 8.
The agency said the expected widening in the CAD and broader balance of payments pressures could lead to persistent stress on India’s forex reserves and maintain depreciation pressure on the rupee during FY2027.
Icra expects India’s services trade surplus to rise around 7 per cent to USD 231-233 billion in FY2027 from USD 216.6 billion in FY2026, although it said this would only partly offset the widening merchandise trade deficit. |
