India's current account deficit is set to narrow modestly in FY27 after aggressive measures to curb gold imports offered policymakers a degree of relief, but analysts at Yes Bank warned on Thursday that sustained pressure on capital flows will continue to weigh on the rupee well into the second half of 2026.
India's trade deficit widened to USD 28.4 billion in April, up sharply from USD 20.7 billion in March, driven by a surge in oil and gold imports even as merchandise exports posted their strongest year-on-year growth in recent months. Yes Bank's Economics Research team said the April figures showed the structural tension at the heart of India's external accounts, buoyant domestic demand pulling in imports at a pace that export growth has so far struggled to match.
Headline exports rose 13.8 per cent year on year to USD 43.6 billion in April, recovering from a contraction of 7.4 per cent in March. Petroleum product exports led the charge, surging 85.1 per cent month on month, largely reflecting higher global prices. Gems and jewellery, electronic goods and iron ore also registered sequential gains. Non-oil exports, however, grew a more modest 0.7 per cent month on month to USD 34 billion, pointing to still-fragile underlying export momentum outside the energy complex.
On the import side, the total bill stood at USD 71.9 billion, up 10 per cent year on year, with non-oil, non-gold imports remaining robust at USD 47.7 billion. The oil import bill ballooned to USD 18.6 billion from USD 12.2 billion in March, partly reflecting renewed movement through the Strait of Hormuz following the announcement of a ceasefire. Gold imports, at USD 5.6 billion, rose 83.8 per cent month on month and accounted for 7.8 per cent of total imports, a share that in FY26 averaged 8.9 per cent of total imports, higher than 7.8 per cent in FY25 and 6.6 per cent in FY24.
It is on the gold front that the government has moved most decisively. With effect from 13 May, import duty on gold and silver was hiked to 10 per cent from 5 per cent, and the Agricultural and Infrastructure Development Cess was raised to 5 per cent from 1 per cent, lifting the total effective import duty to 15 per cent. Import quantity restrictions of 100 kilogrammes have also been imposed on manufacturers under the Advance Authorisation scheme, with subsequent licences conditional on at least 50 per cent of previous export obligations having been fulfilled. Yes Bank's gold desk now expects import volumes to fall sharply to around 420 tonnes in FY27, from an estimated 720 tonnes in FY26.
The bank has revised its current account deficit forecast down to 1.5 per cent of GDP for FY27 from a prior estimate of 1.8 per cent, assuming Brent crude at USD 85 per barrel. Gold import savings alone are estimated at around USD 23 billion, with projected gold imports now valued at USD 57 billion against an earlier estimate of USD 80 billion. The fuel price hike on petrol and diesel, however, is not expected to deliver meaningful reductions in crude import volumes.
Despite the improved current account outlook, Yes Bank cautioned that the capital account will remain a source of concern. The balance-of-payments deficit is now anticipated at USD 30 billion in the base case, and the bank expects the USD/INR exchange rate to reach 97.00–97.50 by the middle of the year. The net services surplus eased slightly to USD 20.6 billion in April from USD 20.9 billion in March, with services exports declining 2.5 per cent month on month to USD 37.24 billion even as they grew 13.4 per cent on a year-on-year basis.
Gold import restrictions alone are insufficient to close the balance-of-payments gap, Yes Bank said. The broader challenge lies in attracting adequate capital flows to fund the deficit at a time when global risk appetite remains uneven and the rupee continues to face depreciation pressure. |
