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 West Asia’s 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 per cent 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.