India’s current account deficit (CAD) is expected to widen sharply to 2.3% of GDP in FY27 from an estimated 0.9% in FY26, as elevated crude oil prices and global economic pressures weigh on the country’s external balances, according to a report released by HSBC on Monday.
The foreign brokerage also projected India’s balance of payments (BoP) deficit to widen to nearly USD 65 billion in the current fiscal year, compared with USD 35 billion in FY26.
HSBC said its estimates are based on an assumption that global crude oil prices will average around USD 95 per barrel during FY27. The report factored in the impact of higher oil imports along with movements in gold prices, core goods trade, services exports and remittance flows while arriving at the CAD forecast.
The brokerage noted that India’s external sector could face increasing stress if capital inflows fail to keep pace with the widening trade and current account gaps. Its BoP projections were prepared after analysing trends in portfolio investments, foreign direct investment (FDI) inflows and external commercial borrowings (ECBs).
The report also examined the adequacy of India’s foreign exchange reserves, which currently stand close to USD 700 billion. While the reserve position appears comfortable under conventional measures, HSBC cautioned that a more dynamic assessment is necessary amid recurring global economic and geopolitical shocks.
“Using a dynamic approach, we benchmark adequacy ratios against the lowest 10th percentile thresholds from India’s own history to make sure minimum support levels are available,” the report said.
According to HSBC, India currently remains above these safety thresholds but the country could slip below them if the projected BoP pressures materialise. The brokerage estimated that an additional USD 30 billion in forex reserves, either through stronger inflows or current account savings, would help maintain adequate external buffers.
HSBC said policymakers face a “two-fold challenge” of reducing the current account deficit while simultaneously attracting sustainable capital inflows.
Among the measures suggested, the report recommended calibrated increases in domestic fuel prices, arguing that higher petrol and diesel prices helped offset external pressures during 2022. It also stressed the need to operationalise recently signed trade agreements to revive slowing FDI inflows.
Additionally, HSBC recommended rationalising taxes on foreign investments and unifying tax treatment across asset classes to deepen financial markets and improve long-term capital inflows into the country.