Strong Domestic Demand, Higher Oil Prices May Push India's FY27 CAD to USD 57 Bn: ICICI Bank

New Delhi, Nov 14 (KNN) India's current account deficit (CAD) is expected to widen to USD 57 billion, or 1.4 per cent of GDP, in FY27 as stronger domestic demand and higher oil prices push up imports despite robust export growth, according to an ICICI Bank report.

The bank expects the merchandise trade deficit to reach USD 380 billion, revising its earlier estimate of USD 388 billion, with gold imports likely to remain moderate.

“Goods exports have seen a stellar performance in the fiscal year so far (22 per cent YoY), but stronger domestic demand and higher oil prices have driven goods imports higher too (16 per cent YoY),” ANI reported, citing the report.

Merchandise Trade Deficit Widens

India's merchandise trade deficit widened to nearly USD 40 billion in October, its highest in 12 months, from USD 30.2 billion in September. The increase was driven by an oil deficit of USD 14 billion and a non-oil, non-gold deficit of USD 20 billion.

Goods exports rose 45 per cent year-on-year (YoY) to a record USD 49 billion in October, supported by a 140 per cent increase in oil shipments and 33 per cent growth in non-oil exports.

However, goods imports increased 17 per cent to a record USD 89 billion, with oil imports rising 54 per cent and non-oil, non-gold imports growing 29 per cent.

Services and Capital Flows Support Rupee

The bank expects moderate services export growth amid softer demand and disruptions linked to artificial intelligence, while remittances are likely to remain steady. Net services exports rose 13 per cent year-on-year to USD 19.8 billion in October.

The recent recovery in foreign portfolio investment (FPI) flows has improved the outlook for the rupee. India received USD 8.8 billion in FPI inflows in November so far, following a period of outflows.

ICICI Bank said the improved flows, along with recent RBI measures, made it more constructive on the rupee, although an escalation in the West Asia conflict remained a near-term risk.

India's balance of payments remained in surplus during the first half of FY27, supported by strong banking capital inflows, including deposits under the FCNR scheme, the report added.

(KNN Bureau)