India’s recent steps to curb gold imports could help narrow the country’s current account deficit (CAD) if bullion demand weakens in line with declines seen during the Russia-Ukraine war, according to a report by HDFC Bank.
HDFC Bank Treasury Research said a 20 per cent decline in gold import volumes, assuming prices remain unchanged, could reduce India’s CAD as a share of gross domestic product by 10 basis points in fiscal year 2027.
“Our base case estimate for CAD per cent of GDP stands at 2.1 per cent of GDP for FY27,” the bank said in its report dated May 18, adding that recent gold import compression measures could partly offset risks from elevated crude oil prices and disruptions in West Asia.
India’s merchandise trade deficit widened to USD 28.4 billion in April 2026 from USD 20.7 billion in March, as import growth outpaced exports. Imports rose 10 per cent year-on-year to USD 71.9 billion, driven largely by higher purchases of gold, silver and electronics, while exports increased 13.8 per cent.
Gold and silver imports surged 85 per cent from a year earlier amid festive demand during Akshay Tritiya and higher bullion prices. Gold imports alone climbed to USD 5.6 billion in April from USD 3.1 billion a year earlier, according to the report.
The government has since raised the effective import duty on gold and silver to 15 per cent and classified silver bars as “restricted” imports in an effort to contain rising bullion inflows.
HDFC Bank said India’s gold imports had reached USD 72 billion in fiscal year 2026, but recent measures could moderate demand in the coming months.
The report comes as India faces competing pressures on its external balance from high oil prices and geopolitical disruptions linked to the closure of the Strait of Hormuz.
HDFC Bank said the continued closure of the strategic shipping route and crude oil prices remaining above USD 110 per barrel posed upside risks to its CAD forecast.
However, lower gold imports and stronger petroleum exports could help cushion some of the pressure.
India’s oil import bill rose to USD 18.6 billion in April from an average of USD 13 billion in the January-March quarter, even as oil import volumes contracted sharply due to supply disruptions.
The bank said the price of India’s crude oil basket averaged USD 114.48 per barrel in April, up more than 69 per cent year-on-year, but lower import volumes partly offset the rise in prices.
At the same time, petroleum exports rose 34.7 per cent year-on-year, supported by elevated global crude prices despite restrictions requiring refiners to divert part of fuel production to the domestic market.
This helped keep India’s net oil import bill, calculated as imports minus exports, at a relatively moderate USD 9 billion in April, the report said.
The bank also noted that services exports continued to provide support to India’s external account. Net services exports rose to USD 20.6 billion in April from USD 15.9 billion a year earlier, helping narrow the combined goods and services deficit to USD 7.8 billion from USD 11.2 billion in April 2025.
Trade flows were also reshaped by the conflict in West Asia, with exports to the United Arab Emirates falling sharply while shipments to Singapore surged, indicating rerouting through alternative transhipment hubs.
Imports from several West Asian countries, including Iraq, Kuwait and Qatar, declined steeply following disruptions linked to the Strait of Hormuz blockade, while imports from Russia and China remained strong.
HDFC Bank said risks to its CAD outlook remained “evenly balanced” for now, as higher oil prices continued to threaten India’s external balance while curbs on bullion imports and stronger oil exports offered partial relief. |
