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Informist, Thursday, Apr. 16, 2026

NEW DELHI – The pain of disrupted energy supplies to India and higher oil prices may have appeared muted in the March merchandise trade figures, but a bigger impact is likely to be reflected from April onwards if the war in West Asia persists, according to economists. The narrowing of India's merchandise trade deficit in March came as a surprise, given higher Brent crude oil prices stemming from the ongoing war.

"In our view, the trade deficit widening has been pushed out rather than avoided. If the energy shock persists and Brent stays elevated, the deficit is likely to widen in the coming months," economists at HSBC said in a report Thursday. India's trade deficit fell to $20.67 billion in March from $27.10 billion in February and $21.69 billion a year ago. In March, India's exports and imports declined by around 7% on-year to $38.92 billion and $59.59 billion, respectively.

"The March data show that the impact of the Iran war is already reflected in a sharp deterioration in export growth, and is probably yet to show up in higher import growth," economists at Nomura said in a note. Approximately every 10% increase in crude oil prices typically adds around 0.4% of GDP to the current account deficit, Nomura said. 

While the US tariff shock to exports has been reduced substantially, the risk from the current energy shock remains, Barclays said. On a month-on-month basis, India's total imports fell despite more working days in March than in February and the massive energy price shock. Barclays said the month-on-month fall in imports was due to lower gold imports. Imports of the yellow metal were lower by $4.4 billion sequentially, while oil imports were only modestly lower to $12.2 billion in March from $13.0 billion a month ago.

The merchandise trade deficit in 2025-26 (Apr-Mar) widened to $333.2 billion from $283.50 billion a year ago. India exported goods worth $441.78 billion in FY26, up from $437.70 billion a year ago. Goods imports rose 7.5% on year to $774.98 billion in FY26.

Considering the current global scenario, HSBC expects India's current account deficit to widen to 1.8% of GDP in FY27 if oil prices average $80 per barrel in 2026. While economists at Barclays estimate the current account deficit at 1.6% of GDP in the current fiscal year, if the crude oil prices average $85 per barrel in 2026.

According to Nomura, the current account deficit will average 2.0% of GDP in FY27, with upside risks if oil prices surprise higher. "Tepid net FDI (foreign direct investment) flows and FII (foreign institutional investor) outflows will most likely lead to a wider balance of payments deficit this year."

India has been witnessing a balance of payment deficit for two years now amid a shrinking capital account surplus, Barclays said. As the current account deficit widens further and the capital account surplus remains underwhelming, India is staring at a third consecutive year of a large balance of payments deficit in FY27, nearly $ 25 billion, according to Barclays. "This would naturally weigh on the INR."

Economists at Barclays foresee the rupee remaining under pressure, with the prolonged war in West Asia likely adding to it. Given this lacklustre external backdrop, Barclays' forex strategists expect the rupee to depreciate to 96.8 per dollar by December.  End

US$1 = INR 93.20

Reported by Shweta

Edited by Saji George Titus

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