India: Plugging The Current Account Hole And Our Forecasts

The US-Iran war has disrupted India's current account via trade and remittance losses, creating a USD83bn hole. The government's structural reforms aim to attract capital inflows, but the exchange rate impact depends on the RBI's strategy for unwinding its forward book.

Key Takeaways

• 1.The US-Iran war has caused a USD83.23bn current account deficit 'hole' in India, representing roughly 2.00% of GDP.
• 2.The RBI and government have implemented structural reforms expected to generate USD95-130bn in capital inflows over two years to offset the deficit.
• 3.USD/INR forecasts have been revised to 96 for Q3/Q4 2026 and 92 for end-2027 due to ongoing war impacts and investor sentiment.

Table of Contents

• Estimating the current account hole
• Trade with the Middle East
• India's imports from the Middle East
• Energy (crude oil)
• The alternatives to the Middle East's oil
• Summary
• Energy (Liquefied Petroleum Gas (LPG))
• The alternatives to the Middle East's LPG
• Summary
• Can renewables offset the loss in oil and gas imports?
• Gold, precious stones and jewellery (PM)
• The alternatives to the Middle East's PMs
• Summary
• Organic chemicals
• The alternatives to the Middle East's organic chemicals
• Summary
• Other import categories
• US-Iran war to increase India's imports bill
• India's exports to the Middle East
• Refined fuel
• Alternatives for refined fuel exports
• Summary
• Electronics
• Summary
• Other export categories to the Middle East
• US-Iran war to reduce India's exports
• The Middle East and remittances
• So, how much does the US-Iran war affect India's current account?
• What does this mean for the INR?
• USD/INR appreciation needed
• Plugging the hole via capital inflows
• Unwinding the RBI's forward book
• Conclusion

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