Amid a sharp year-on-year (YoY) contraction in oil imports following the onset of the West Asia crisis, India’s merchandise trade deficit (MTD) eased to $20.7 billion in March 2026 from $21.7 billion in the year ago month, after having displayed a steep increase in January-February 2026. This would provide some respite to the current account balance in Q4 FY2026, which would nevertheless likely witness a likely deficit to the tune of ~0.6% of GDP in the quarter, in contrast with the typical seasonal surplus that is seen during the last quarter of the fiscal. Overall, India’s current account deficit (CAD) is expected to widen to ~0.9% of GDP in FY2026 from 0.6% in FY2025, reflecting a combination of tariff-related issues and the gold price spike. Thereafter, ICRA expects the same to nearly double to ~1.7% of GDP, assuming an average crude oil price of $85/barrel for the fiscal. This estimate would be susceptible to sizeable upside risks, with every $10/barrel increase in the average crude price widening the CAD-to-GDP ratio for the fiscal by 30-40bps.

EXHIBIT: Oil shipments rose by 5.9% YoY to a 10-month high $5.2 billion in March 2026, reflecting the surge in global crude oil prices; in Q4 FY2026, the YoY contraction in oil exports widened to 12.8% from 8.4% in Q3