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Gold Rush Fallout: How Surging Imports Drove India's Deficit to 1.3%

India's current account deficit widened significantly last quarter, hitting 1.3% of GDP. This jump was primarily fueled by a massive 150% surge in gold imports. While strong services exports and remittances helped soften the blow, weaker foreign investment flows added pressure. Analysts now expect the deficit to remain elevated for the rest of the fiscal year.

Key Points: India's CAD Widens to 1.3% in Q2 FY26 on Gold Import Surge

  • Gold imports surged nearly 150% quarter-on-quarter to USD 19 billion in Q2 FY26
  • Services exports grew in double digits, led by IT and business services
  • Foreign portfolio investors recorded net outflows, weakening capital account surplus
  • Analysts revised FY26 CAD projection upward to 1.4% of GDP from 1.2%
3 min read

Gold imports drive India's CAD to 1.3% in Q2 FY26: Analysts

India's current account deficit widened to 1.3% of GDP as gold imports surged 150%. Analysts from Crisil and Emkay revise FY26 forecast upward.

"Healthy net services exports will cushion the impact of the wider goods deficit, but volatile foreign flows could keep the BoP under pressure. - Emkay Global"

New Delhi, December 3

India's current account deficit (CAD) widened sequentially to USD 12.3 billion, or 1.3% of GDP, in the second quarter of FY26. Analysts believe that the deficit is led by a sharp rise in the merchandise trade gap despite strong growth in services exports and remittances. The CAD had stood at 0.3% of GDP in the previous quarter.

According to assessments by Crisil, ICICI Bank Research and Emkay Global, the merchandise deficit expanded as gold imports surged nearly 150% quarter-on-quarter, touching USD 19 billion in Q2, while goods exports declined on a sequential basis following the rollout of higher US tariffs on Indian shipments.

Overall goods exports stood at about USD 109 billion, while imports rose to nearly USD 197 billion.

Services exports grew in double digits, with Crisil estimating IT and business services receipts rising to USD 101.6 billion in the quarter. Net services exports increased 14 per cent year-on-year, while remittances climbed to USD 36-39 billion, helping offset a part of the wider goods gap.

The capital account surplus moderated sharply to USD 0.6 billion, or 0.1 per cent of GDP, compared with USD 8 billion in the previous quarter. Emkay Global, citing weaker foreign inflows across both FDI and FPI, said foreign portfolio investors recorded net outflows and foreign direct investment inflows remained subdued. ICICI Bank Research also flagged softer loan disbursements and reduced external assistance.

With financial flows weakening, India's balance of payments slipped into a deficit of USD 11 billion in Q2FY26. RBI's foreign exchange reserves saw an overall drawdown of USD 10.9 billion during the quarter on a BoP basis.

Emkay Global revised its full-year FY26 CAD projection upward to 1.4 per cent of GDP from 1.2 per cent earlier, citing expectations of negative export growth (-7 per cent) through the year and stronger non-oil import growth driven partly by gold imports, which it expects to rise 22 per cent in FY26. The brokerage noted that healthy net services exports will cushion the impact of the wider goods deficit, but volatile foreign flows could keep the BoP under pressure, potentially resulting in a USD 22-23 billion deficit for the full year.

Analysts across institutions expect the rupee to retain a weakening bias. Emkay suggested that policy preferences appear to be shifting toward a softer currency to offset the tariff-driven export shock. It projected USD/INR to trade in the 88-91 range until the end of FY26, depending on the evolution of U.S.-India tariff negotiations.

Crisil and ICICI Bank similarly flagged that global headwinds, elevated tariffs and strong domestic demand will keep external balances under pressure in the coming quarters, even as services strength and remittances continue to provide resilience.

- ANI

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Reader Comments

R
Rohit P
This is worrying. A 150% jump in gold imports is insane! While services exports and remittances are doing the heavy lifting, we can't keep relying on them to bail us out. Need stricter curbs on non-essential imports.
A
Aditya G
The US tariff hike is a major blow. It shows how vulnerable our export sector is to external policy changes. Time to diversify our export markets and focus on value-added manufacturing, not just raw materials.
S
Sarah B
As someone working in IT, it's good to see services exports holding strong. That's our real competitive advantage. But the weak FDI and FPI numbers are a red flag for investor confidence. The rupee in the 88-91 range sounds about right given the pressures.
K
Karthik V
Respectfully, I think the analysis misses the point about domestic demand. Strong demand is good for the economy, even if it increases imports. The focus should be on making our exports competitive again, not just curbing imports. A slightly weaker rupee might actually help.
M
Meera T
Remittances touching nearly $40 billion is the unsung hero here! Our diaspora is literally sending money home to keep the economy afloat. Jai hind! 🇮🇳 But yes, the gold splurge before Diwali and weddings is clearly showing in these numbers.

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