India's Growing Current Account Deficit: A Deeper Look into FY27 Trends

India's current account deficit is projected to expand in FY27 due to rising goods deficit amid strong domestic demand. Despite this, capital flows are expected to support the INR. ICICI Bank reports a significant increase in the goods deficit, influenced by higher oil prices and escalating non-oil-non-gold imports.

India's current account deficit is on track to widen in fiscal year 2027, primarily due to a rising goods deficit fueled by robust domestic demand and increased import levels, according to projections by ICICI Bank. The bank highlights that while the goods deficit is anticipated to grow to $390 billion, the reinvigoration in capital flows is expected to cushion the Indian Rupee in the second half of the fiscal year.

ICICI Bank noted a significant surge in the goods deficit, which expanded sharply to $85.7 billion in the first quarter of FY27, compared to $68.9 billion one year earlier. This uptrend is largely attributable to escalating oil prices and an upsurge in non-oil-non-gold imports. Despite the expanding merchandise deficit, the current account deficit was contained at $6.2 billion in Q1, buoyed by a 9% year-on-year increase in services exports, reaching $52.2 billion, and a substantial 34% rise in remittances.

Capital flows, particularly FPI equity and debt inflows, have reversed from outflows to inflows as favorable tax changes and a positive currency outlook bolster the market. India's potential inclusion in the Bloomberg index is poised to sustain passive debt inflows. Despite mounting pressures on Asian currencies that could impact the Indian Rupee, ICICI Bank remains optimistic, projecting an overall balance of payments surplus of approximately $55 billion for the year.