Goldman Sachs Turns Bullish on India's External Position, Lowers CAD Forecast
Quick Look
- Goldman Sachs has revised its outlook on India's external position, projecting a lower current account deficit of 1.3% of GDP by 2026 and a balance of payments surplus.
- The firm cites improved energy efficiency and the RBI's measures to boost capital inflows.
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Why It Matters
Goldman Sachs has revised its forecast for India's current account deficit and balance of payments surplus, citing improved economic factors and central bank measures.
It expects India to be less vulnerable to higher crude oil prices than in previous years, citing lower oil intensity, improved energy efficiency and greater responsiveness of oil demand to increasing prices.
New Delhi: Goldman Sachs has turned more optimistic on India's external position, lowering its current account deficit (CAD) forecast for 2026 to 1.3% of gross domestic product (GDP) from 2% earlier and projecting a balance of payments (BoP) surplus of 0.6% of GDP after two years of deficits.
Despite lower capital inflows, India posted a $7.2 billion BoP surplus for the January-March period, supported by stronger remittances, robust services exports and reduced oil imports. According to Goldman Sachs, this reflected precautionary dollar demand amid heightened uncertainty in West Asia.
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"Going forward, higher oil prices will likely widen India's current account deficit, but the deterioration is likely to be less severe than in past energy shock episodes," it said in its latest report, 'India: A More Favourable Balance of Payments Outlook'.
The US-based financial services company attributed the rupee's depreciation largely to precautionary demand for dollars amid heightened geopolitical tensions in West rather than a deterioration in India's external position.
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It expects India to be less vulnerable to higher crude oil prices than in previous years, citing lower oil intensity, improved energy efficiency and greater responsiveness of oil demand to increasing prices.
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The report also factored in the RBI's recent measures to encourage foreign currency inflows, including incentives for foreign currency non-resident (bank) account deposits, concessional swap facilities for external commercial borrowings and tax benefits for foreign investors in government securities. These measures could bring in about $60 billion of additional capital inflows during 2026, as per Goldman Sachs estimates.
What to Watch
AI outlook — possibilities, not facts
India to be less vulnerable to higher crude oil prices.
Likely · Medium term
Additional capital inflows of about $60 billion during 2026.
Likely · Medium term
Open Questions
- Will geopolitical tensions in West Asia escalate further?
- How will global crude oil prices evolve in the medium term?
