India's current account deficit (CAD) is projected to widen significantly to 2.3 percent of GDP in the fiscal year 2026-27 (FY27), up from 0.9 percent in FY26, according to a report by foreign brokerage HSBC. The widening is attributed to elevated oil prices and external sector pressures, as reported by PTI.
Balance of Payments Deficit Projections
The report also forecasts the balance of payments (BoP) deficit to increase to $65 billion in the current fiscal year, compared to $35 billion in the previous fiscal. HSBC's estimates are based on the assumption of crude oil averaging $95 per barrel, combined with trends in oil, gold, core goods, services trade, and remittances.
HSBC stated that it assumed crude prices to average $95 a barrel and incorporated sensitivities in oil, gold, core goods, services trade, and remittances to arrive at a current account deficit of 2.3 percent of GDP in FY27, against 0.9 percent in FY26. The BoP projections were prepared after assessing trends in portfolio inflows, foreign direct investment (FDI), and external commercial borrowings (ECBs).
Foreign Exchange Reserves Analysis
The report examined India's foreign exchange reserves, noting that the current reserve position of nearly $700 billion appears comfortable from a traditional perspective. However, it cautioned that this needs to be viewed differently amid heightened global risks. Using a dynamic approach, HSBC benchmarked adequacy ratios against the lowest 10th percentile thresholds from India's own history to ensure minimum support levels are available.
While India currently remains above these thresholds, the projected BoP scenario could put pressure on reserve adequacy. The report indicated that around $30 billion of extra forex reserves, via extra inflows or current account savings, would keep all buffers above the 10 percent threshold.
Policy Challenges and Recommendations
The report flagged a dual challenge for policymakers: lowering the CAD and attracting sustainable capital inflows. HSBC suggested a range of policy measures, including higher retail fuel prices. Evidence from 2022 showed that adequate pump diesel and petrol price increases could cover two-thirds of the extra funds needed.
Additionally, the report recommended operationalising recently signed trade agreements to strengthen India's growth outlook and support FDI inflows, which have slowed. It also suggested aligning tax treatment across asset classes and recalibrating India's taxation framework for foreign investments to help deepen markets and support sustainable capital inflows.
