But economists are not revising the full-year current account deficit (CAD) forecasts just yet.
Speaking to CNBC-TV18, Anubhuti Sahay, Head of India Economic Research at Standard Chartered Bank, said the headline number was “clearly worrisome”, but the broader trajectory for the year still points to a CAD close to -1% of GDP.
While the spike in gold imports has drawn understandable attention, Sahay warned that the composition beneath the headline number is more worrying.
“Gold came in at $14 billion of import value for just one particular month. But volumes have actually contracted — it is purely a price effect,” she said. The more structural risk, she argued, lies in oil imports. Despite a nearly 10% fall in global prices since the start of the year, India’s oil deficit remains unchanged from last year, when average crude prices were significantly higher.
“What has not worked well for the CAD is that volumes are much higher. Consumption data from the petroleum ministry shows only a 1% increase, but commerce ministry data indicates around 10% growth in import volumes,” Sahay noted. The divergence has puzzled economists, and Sahay sees it as a key factor to watch in the coming quarters.
Adding to the strain, India’s goods exports fell 11.8% year-on-year in October. Shipments to the United States — India’s largest export market — slumped 8.6% as tariff-related disruptions continued to weigh on outbound trade.
This weakness means the services surplus, which typically acts as a cushion, is no longer sufficient to offset a goods deficit of this magnitude.
Despite the record monthly deficit, Sahay said her team continues to forecast a -1% CAD for FY26, supported by expectations of seasonal improvement in non-oil, non-gold imports in the March quarter.
“We started with a wider-than-market CAD forecast. Net-net, our view still remains intact,” she said.
However, the risks going forward remain skewed to the downside: unresolved tariffs on key export destinations, uncertainty around oil import behaviour, and the possibility of further dollar outflows if global financial conditions tighten again.
Neeraj Gambhir, Group Executive & Head of Treasury and Markets at Axis Bank, said the unusually large deficit number is likely to have a sentimentally negative impact on the rupee, even though the gold spike reflects festival-season household purchases rather than a structural consumption surge.
“Overall, the economy is doing fairly well. In fact, our economics team has upgraded this year’s GDP forecast to 7.2% from 6.7%. But we still see the CAD hovering around 1.1%–1.2% of GDP,” he said.
With foreign portfolio investors continuing to pull out money through November, Gambhir expects the balance of payments to be negative by $25–27 billion this year — implying substantial RBI intervention to stabilise the currency.
October’s historic trade deficit underscores a growing divergence between India’s robust domestic demand indicators and its weakening external metrics. While economists expect the full-year CAD to remain manageable, the combination of falling exports, unstable oil dynamics, persistent gold demand and capital outflows means the rupee could stay under pressure, and policymakers will need to watch the next few months closely.
Below is the excerpt of the discussion.
Q: Anubhuti, first, parse the numbers for us. Given this kind of trade deficit of $41 billion, even if we include the services surplus, it is still an all-time high monthly deficit. Have you changed your current account deficit estimate for the full year?
Sahay: We have not changed our full-year forecast. We are still at minus 1% of GDP for the current account deficit. There are a few factors that keep us a little cautious. Initially, we also started with a wider-than-market forecast on the current account deficit. A few things I would like to highlight: this number is clearly worrisome when it comes to the $41 billion deficit, and there are some interesting nuances when you look at the details. First, we are all focused on gold for the right reasons, because it came in at $14 billion of import value for just one particular month. But the bigger point is that volumes have taken a hit. Volumes have contracted, but of course, it is a pure price effect. What has not worked well for the Indian current account deficit is that we all assumed that with almost a 10% correction in oil prices since the start of the year, our oil deficit would change. Our oil deficit has remained absolutely the same as last year, when oil prices actually averaged $78, because volumes are much higher. Now, if the volumes correct, what we also noticed is that Indian consumption has not increased. Our exports are falling, but our oil deficit continues to remain the same. Is it front-loading, or do we see a continuation of this large amount of oil imports going forward? I think that is one big question mark. We should also see some positive seasonality playing out, especially for non-oil, non-gold in Q4, and that should help. But net-net, our view still remains intact that for this financial year, we will see the current account deficit staying close to minus 1% of GDP.
Q: This oil deficit — the fact that we are continuing to import large quantities despite the fall in price — could also mean that the domestic economy is ticking along well, isn’t it? It’s consuming more fuel.
Sahay: That was our hypothesis. But when you look at the petroleum ministry’s data, consumption is not picking up. It is a very minimal increase of 1%. But if you look at the commerce ministry’s data on volume — and I would like to flag that the commerce ministry data is only for the first half of FY26 — the growth is 10%, and exports are also falling. So that is one big piece on which we need a clearer answer, because a similar trend of lower prices and higher volumes happened in 2015–16, but those were accompanied by increased domestic consumption.
Q: Neeraj, when you get such a big number, an all-time high trade deficit, and exports getting this whammy from tariffs, do you think this is going to have a worse sentimental impact on the currency? It is now not just capital flows but also the current account.
Gambhir: From a sentiment standpoint, it does have a negative impact, because this is a pretty large number, and nobody anticipated it. But if you peel the onion, you will realise that a large part of that is gold — household purchases during the festival season, despite high prices. So, it is not necessarily a consumption-driven expansion of the current account. Although overall, it seems like the economy is doing fairly well compared to expectations. In fact, our economics team has upgraded their forecast for this year’s GDP to 7.2% as against 6.7%. So clearly, the underlying momentum in the economy seems much better than estimated earlier.
Net-net, we will probably see 1.1% to 1.2% of current account deficit this year, which is higher than last year’s 0.6%. So clearly, there is a widening of the current account deficit, and capital flows have not picked up. The overall BoP is likely to be negative — our estimate is about $25–27 billion negative — and that is the amount of intervention we will see the Reserve Bank doing to support the currency.
Watch accompanying video for entire discussion.
