Goldman sees India current account gap narrowing as rupee pressure eases

Goldman Sachs has lowered its forecast for India’s current account deficit and expects the country to post a balance of payments surplus this year, arguing that recent pressure on the rupee looks larger than what external fundamentals justify.

A current account deficit is the gap that opens when a country pays more to the rest of the world for goods, services and income than it receives. A balance of payments surplus means the country still has a net inflow of foreign exchange once investment and other financial flows are counted.

India is expected to record a current account deficit of $46 billion, or 1.3% of gross domestic product (GDP), in calendar year 2026, compared with Goldman’s earlier forecast of $78 billion, or 2% of GDP, according to a 14 June report by the bank’s economists Arjun Varma, Santanu Sengupta and Andrew Tilton.

For FY27, Goldman lowered its current account deficit forecast to 1.7% of GDP from 2.1% earlier. The bank expects India to record a balance of payments surplus of about 0.6% of GDP in both CY26 and FY27, after two consecutive years of deficit.

The revised outlook rests on three main factors: lower oil import assumptions, a likely moderation in gold imports, and higher capital inflows following recent measures by the Reserve Bank of India and the government to attract dollar flows.

Goldman said the rupee’s recent weakness appears to have been driven more by precautionary and speculative dollar demand amid Middle East uncertainty than by a deterioration in India’s external position.

India recorded a balance of payments surplus of $7.2 billion in the first quarter of CY26, despite softer capital inflows. The current account posted a $7 billion surplus, helped by record remittances, a strong services trade surplus and a lower-than-expected oil import bill.

The bank said higher oil prices would still widen India’s current account deficit, but the impact is likely to be less severe than during earlier energy shocks. India’s oil intensity has declined over the past three decades because of better energy efficiency, greater transport electrification and a shift toward less energy-intensive growth.

Goldman now expects India’s oil import bill at $220 billion in CY26, or 5.6% of GDP, down from its earlier estimate of $244 billion, or 6.3% of GDP. It said oil import volumes have become more sensitive to prices after the pandemic, with volumes tending to fall when Brent crude rises above $75 to $80 a barrel.

The bank estimated that a 10% rise in fuel prices lowers petrol and diesel consumption growth by about 3% on average over the following 12 months. With Brent expected to average around $90 a barrel in CY26, weaker import volumes could partly offset the impact of higher prices on the trade deficit.

Gold imports are also expected to moderate after recent duty increases. Goldman cut its CY26 gold import forecast to $56 billion, or 1.4% of GDP, from $64 billion, or 1.6% of GDP, earlier.

The report said gold import volumes have historically weakened within one to two months of duty increases, with the full impact typically playing out over five to six months. However, it cautioned that geopolitical uncertainty, high gold prices and wedding-season demand could limit the durability of the decline, while higher duties may also encourage unofficial imports.

Remittances remain another cushion. Goldman raised its CY26 remittance forecast to $136 billion from $134 billion after stronger-than-expected inflows in the first quarter. It said precautionary transfers by non-resident Indians amid Gulf uncertainty likely supported the first-quarter surge, although inflows may moderate over the rest of the year as growth slows across GCC economies.

On the capital account, Goldman expects about $60 billion of additional inflows from RBI and government measures aimed at attracting dollars.

These include concessional forex swap facilities for foreign currency non-resident bank FCNR(B) deposits and offshore borrowings by quasi-sovereign entities, wider access for foreign investors to long-tenor government securities, and tax exemptions on interest income and capital gains from G-Secs.

Goldman estimates $30 billion to $50 billion of inflows from the FCNR(B) deposit scheme, $5 billion to $15 billion from external commercial borrowings, and about $10 billion of incremental foreign portfolio investment into government debt over the next six to 12 months.

Foreign equity flows, however, are expected to remain weak. Goldman said foreign portfolio equity flows have seen net outflows of around $20 billion over the past two years and a further $29 billion so far in CY26. It expects about $25 billion of net equity outflows this year, citing India’s elevated valuation premium, weaker earnings momentum and rupee depreciation weighing on dollar returns for foreign investors.

The improved balance of payments outlook should reduce depreciation pressure on the rupee, Goldman said. But it does not expect significant appreciation, as renewed dollar inflows are likely to be absorbed by the RBI through reserve accumulation and the unwinding of its short forward dollar position.

The bank said the rupee appears broadly fairly valued on a trade-weighted basis. Any recovery in dollar inflows, it said, is more likely to help rebuild India’s foreign exchange buffers than trigger a sharp rise in the currency.