Improved Exports and Lower Oil Prices May Support External Sector Stability in FY27

India’s external sector outlook for FY27 has shown signs of improvement, supported by stronger export performance and relatively lower crude oil prices. According to a recent banking sector assessment, the country's Current Account Deficit (CAD) could moderate to approximately 1.6% of GDP in FY27, compared to earlier expectations of around 2% of GDP under less favorable conditions.

Export Growth Reaches Record Levels

India’s merchandise exports recorded significant growth during May 2026, rising 18% year-on-year to USD 45 billion, the highest monthly level recorded so far. The expansion was driven by both oil and non-oil segments.

Oil exports increased to USD 8.4 billion, compared with USD 5.4 billion in the corresponding month of the previous year, reflecting annual growth of 55%. However, on a month-on-month basis, oil exports declined by approximately 12%.

Non-oil exports continued to strengthen and reached a 24-month high of USD 36.8 billion, registering growth of around 12% year-on-year and 8.3% month-on-month. Key contributors included agricultural products and gems & jewellery exports, both of which recovered after experiencing contraction during the preceding months.

Import Trends and Trade Deficit Position

Non-oil, non-gold imports stood at USD 47 billion in May 2026, reflecting 8.6% annual growth, indicating continued domestic economic activity and industrial demand.

India’s merchandise trade deficit remained relatively stable at USD 28.2 billion in May, compared with USD 28.4 billion in April. Although the oil trade deficit widened to USD 14.3 billion from USD 9.0 billion in the previous month, the impact was partly offset by improvements in other segments.

The non-oil, non-gold trade deficit narrowed to USD 10.5 billion from USD 13.7 billion, while gold imports declined sequentially by approximately USD 2.2 billion, helping contain overall external sector pressures.

Current Account Returns to Surplus

Based on the Reserve Bank of India’s monthly estimates, India recorded a current account surplus of USD 4.7 billion in April 2026, compared with a deficit of USD 4.8 billion in April 2025.

The improvement reflects stronger export earnings, moderation in certain import categories, and supportive policy measures aimed at encouraging foreign inflows. Recent RBI initiatives are expected to facilitate additional capital inflows and strengthen the overall Balance of Payments (BoP) position during FY27.

Oil Prices and FY27 Outlook

Market assessments indicate that recent geopolitical developments in West Asia have contributed to softer crude oil prices, with oil expected to remain near USD 83–85 per barrel under current conditions.

If crude prices remain within this range and export momentum continues, India’s trade deficit may remain lower than previously estimated. Under such a scenario, the Current Account Deficit is projected to remain around USD 65 billion, equivalent to approximately 1.6% of GDP.

Balance of Payments Expected to Improve

The external sector outlook also points toward a potential Balance of Payments surplus in FY27, following two consecutive years of deficit. A combination of stronger exports, moderated external imbalances, supportive RBI measures, and improved capital inflows could provide near-term stability to the Indian rupee and strengthen overall macroeconomic fundamentals.