India's BoP outlook improves, INR depreciation pressure to ease: Goldman Sachs
New Delhi, June 20
India's balance of payments outlook looks more favourable than the rupee's recent weakness suggests, with a Q1 CY26 surplus and lower oil and gold import assumptions prompting Goldman Sachs to cut its current account deficit forecasts, the brokerage said in a research report.
Goldman Sachs said India posted a $7.2bn BoP surplus in Q1 CY26 despite softer capital inflows, supported by stronger remittances, robust services exports and low oil imports. The apparent divergence between INR weakness and strong underlying BoP fundamentals suggests recent currency pressure was driven more by precautionary dollar demand amid heightened Middle-East uncertainty than by a deterioration in external fundamentals.
Goldman Sachs sees a smaller hit from higher oil prices than in past energy shocks. "India's oil intensity has declined steadily since 1990s, reflecting improved energy efficiency, rising transport electrification, and a shift toward less energy-intensive growth," the brokerage noted. Post-pandemic, oil import volumes also appear more price-sensitive, with volumes now declining more when oil rises above $80/bbl. As a result, higher oil prices may not translate into a proportionate increase in India's oil import bill.
The brokerage also expects gold import duties to weigh on volumes with a lag. "Historically, duty hikes have begun to weigh on gold import volumes with a 1-2 month lag, and we expect the same in this cycle," Goldman Sachs said. Incorporating lower oil and gold import assumptions and better-than-expected Q1 data, the brokerage lowered its current account deficit forecast to 1.3 per cent of GDP in CY26 and 1.7 per cent of GDP in FY27 from 2.0 per cent and 2.1 per cent earlier.
On capital flows, Goldman Sachs expects RBI measures to 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, together with exemptions on interest and capital gains tax on G-Sec for FPIs, should underpin capital inflow revival and support the INR," the report said. With an estimated $60bn of additional inflows from these measures, Goldman Sachs expects India to record a BoP surplus of around 0.6% of GDP in CY26 and FY27 each.
On the rupee, the brokerage said depreciation pressure should ease but significant appreciation is unlikely. "An improved balance of payments outlook should help lower depreciation pressures on the INR. While the currency appears broadly fairly valued on a trade-weighted basis, we expect any renewed dollar inflows to be largely absorbed by the RBI through reserve accumulation and unwind the short forward book, limiting the scope for significant appreciation," Goldman Sachs noted.
— ANI
Reader Comments
🤔 So basically the rupee is stable because of strong fundamentals, not just because of RBI intervention? That's reassuring. But I worry about the Middle East uncertainty - if things escalate, all these projections could go out the window. Still, good to hear about the services exports and remittances cushioning our balance of payments.
The duty hike on gold imports is a smart move - reduces the current account deficit while also checking unnecessary luxury spending. I've seen how gold prices have softened lately, and this analysis suggests it's working. But the RBI needs to ensure these measures don't hurt genuine gold investors.
Positive news for India's external sector. The lower current account deficit forecast is encouraging, but I'm cautious about the "limited appreciation" comment - if dollar inflows increase, shouldn't that strengthen the rupee? The RBI's reserve accumulation strategy seems prudent but could be more transparent.
As an NRI, this is good news. The stronger remittances and services exports are exactly what India needs. But I wish the analysis had more on how this impacts everyday Indians - stable rupee means cheaper imports but also keeps export competitiveness. Balance is key.
Nice analysis. The $60bn expected inflows from RBI measures is significant. I'm particularly encouraged by the decline in India's oil intensity - that's a structural improvement. However, I'd like to see more details on how these inflows will be channeled - infrastructure? Manufacturing? That would boost long-term economic growth.
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