Economists Warn Rising Crude Prices Could Push India's Current Account Deficit Over 2% Despite Gold Tariff Hikes
India has raised import duties on gold and silver to 15 percent and tightened shipment norms in an effort to curb non‑essential foreign‑exchange outflows. However, analysts warn that these measures may not be sufficient to shield the economy from a widening external sector gap, especially if crude oil prices remain high. Emkay Global keeps its FY27 current account deficit (CAD) projection at 1.7 percent of GDP, based on an average Brent price of $80 per barrel, but notes that the risk of the deficit exceeding 2 percent rises as oil trades above $100 per barrel.
Barclays echoed similar concerns, pointing out that elevated international gold prices could offset the impact of the new import duties. The bank expects the gold import bill to stay elevated, despite the higher tariff, and has revised its FY27 CAD forecast to 1.8 percent of GDP, up from 1.6 percent. It also projects a balance of payments deficit of $50 billion for the current fiscal year, warning of continued pressure on the rupee. Barclays suggests that policy makers should also address the shrinking capital account surplus by allowing state‑owned lenders to issue foreign‑currency bonds and harmonising withholding tax on foreign investment inflows.
India's merchandise trade deficit widened to $28.4 billion in April, up from $20.7 billion in March, driven by sharp increases in oil, gold and non‑oil non‑gold imports. Gold imports jumped 81.7 percent year‑on‑year in April, rebounding from a decline in March, while oil imports rose sequentially amid high prices. Emkay expects the latest curbs to cut gold import volumes by 20‑25 percent in FY27, though higher global bullion prices could offset part of the reduction. Industry insiders note that while short‑term consumer sentiment may become more cautious, India's cultural and wealth‑preservation demand for gold remains strong, with buyers likely to shift to lighter or gemstone‑set jewellery rather than abandon purchases altogether.
