Goldman Sachs has revised its outlook for India's balance of payments (BoP), stating that the external position appears more favourable than recent rupee weakness suggests. In a research report, the brokerage highlighted that a surplus in the first quarter of calendar year 2026, combined with lower oil and gold import assumptions, has led to a reduction in current account deficit forecasts.
Q1 CY26 BoP Surplus
India recorded a BoP surplus of $7.2 billion in Q1 CY26, despite softer capital inflows. This surplus was supported by stronger remittances, robust services exports, and low oil imports. Goldman Sachs noted that the apparent divergence between the rupee's weakness and strong underlying BoP fundamentals indicates that recent currency pressure was driven more by precautionary dollar demand due to heightened Middle East uncertainty, rather than a deterioration in external fundamentals.
Lower Impact from Oil Prices
Goldman Sachs expects a smaller impact from higher oil prices compared to past energy shocks. The brokerage stated that India's oil intensity has declined steadily since the 1990s, reflecting improved energy efficiency, rising transport electrification, and a shift toward less energy-intensive growth. Post-pandemic, oil import volumes have become more price-sensitive, with volumes declining more when oil prices rise above $80 per barrel. As a result, higher oil prices may not lead to a proportionate increase in India's oil import bill.
Gold Import Duties to Weigh
The brokerage also anticipates that gold import duties will weigh on volumes with a lag. Historically, duty hikes have begun to affect gold import volumes after a one to two month lag, and Goldman Sachs expects a similar pattern in the current cycle. Incorporating lower oil and gold import assumptions and better-than-expected Q1 data, the brokerage reduced its current account deficit forecast to 1.3% of GDP in CY26 and 1.7% of GDP in FY27, down from earlier estimates of 2.0% and 2.1%, respectively.
Capital Flows and RBI Measures
On capital flows, Goldman Sachs expects that measures by the Reserve Bank of India (RBI) will underpin inflows. The RBI's comprehensive set of measures to incentivize dollar inflows, including concessional forex swap rates for banks and quasi-sovereigns to raise USD funding, along with exemptions on interest and capital gains tax on government securities for foreign portfolio investors, should support a revival in capital inflows and bolster the rupee. With an estimated $60 billion in additional inflows from these measures, Goldman Sachs expects India to record a BoP surplus of around 0.6% of GDP in both CY26 and FY27.
Rupee Outlook
Regarding the rupee, the brokerage said that depreciation pressure should ease, but significant appreciation is unlikely. An improved BoP outlook should help lower depreciation pressures on the INR. While the currency appears broadly fairly valued on a trade-weighted basis, Goldman Sachs expects any renewed dollar inflows to be largely absorbed by the RBI through reserve accumulation and unwinding of the short forward book, limiting the scope for significant appreciation.
