Rising oil prices and gold imports to widen trade deficit, CAD may touch 1.5-2 pc of GDP: ICICI Securities

NEW DELHI: With the West Asia conflict persisting and global oil prices likely to average around $100/bbl, India’s current account deficit could rise meaningfully this year, ICICI Bank Global Markets has warned.

While resilient services exports should offer some cushion, the brokerage expects the current account deficit (CAD) to settle between 1.5-2 per cent of GDP, provided non-essential imports are contained and capital inflows improve once global risk sentiment stabilizes.

India’s goods exports had a strong start to FY27, rising 14 per cent YoY to $43.6 billion in April, driven by a sharp 35 per cent YoY jump in oil exports and a 9 per cent YoY rebound in non-oil exports. Oil exports touched $9.6 billion, the strongest growth in about two years, aided by elevated global prices and a sequential surge of 85 per cent from March. Non-oil exports stood at $34 billion, flat on a month-on-month basis but up 9 per cent annually.

Sectorally, electronics exports hit an all-time high of $5.2 billion, growing 40 per cent YoY, while engineering goods (8.8 per cent YoY) and chemicals (7.2 per cent YoY) also posted gains. Marine products, ores and minerals and plastic and rubber articles recorded positive growth. However, exports of ceramics and glassware fell 41 per cent YoY, with gems and jewellery, textiles, and agri products also contracting.

Regionally, exports to the US improved mildly by 1.1 per cent YoY to $8.5 billion, reflecting gradual tariff normalisation. Exports to non-US countries grew sharply by 17 per cent YoY to $35 billion, led by China, Hong Kong, Singapore, the UK, and Germany. The outlier was West Asia, where exports contracted 28 per cent YoY due to the ongoing blockage of the Strait of Hormuz.

On the import side, goods imports rose 10 per cent YoY to $71.9 billion, led by an 82 per cent YoY surge in gold imports to $5.6 billion and a 15 per cent YoY rise in non-oil non-gold imports to $47.7 billion. Oil imports, however, fell 10 per cent YoY on a high base but jumped 53 per cent MoM to $18.6 billion, the highest in 12 months, as global crude prices climbed to ~$105/bbl. Electronics and machinery imports also hit record highs, contributing nearly 27 per cent of the goods import basket.

The widening gap pushed India’s goods trade deficit to $28.4 billion in April, up from $20.7 billion in March. Both the oil deficit ($9 billion) and non-oil non-gold deficit ($13.7 billion) expanded sequentially. Including services, the overall goods and services deficit widened to $7.8 billion from a mild surplus of $0.3 billion in March.

Services trade provided some relief, with net services exports growing 29 per cent YoY to $20.6 billion in April, above the FY26 average of $18.1 billion. Gross services exports rose 13 per cent YoY to $37.2 billion.

Capital flows remain a concern. “FPI outflows are quite high at $10 billion in FY27 so far”, ICICI Securities noted, adding that inflows should return once tech and commodity-driven global themes fade. In the interim, easing compliance and regulations could help attract inflows.

With both oil and gold imports remaining elevated and global uncertainty persisting, the report underscores the need for policy measures to restrict non-essential imports to protect the external balance. (ANI)