Niti Shastra | Navroop Singh, Himja Parekh
India's economy faces severe macroeconomic headwinds in mid-2026. Escalating West Asia conflict and Strait of Hormuz disruptions propelled Brent crude prices to $111–120 per barrel, now $105–106. India, importing 85% of its crude, sees a $10 oil price increase widen its current account deficit by 40–50 basis points of GDP. April 2026 merchandise trade deficit hit $28.4 billion; FY27 CAD is projected at 2.3–2.4% of GDP, with a Balance of Payments deficit exceeding $65–70 billion. The Indian rupee depreciated 7% year-to-date to 96.93–97 against the US dollar, despite the Reserve Bank of India's daily $1 billion interventions and a $5 billion Dollar/INR swap. Foreign capital inflows reversed sharply: net FDI collapsed to $353 million in FY25, and FII equity outflows exceeded ₹2 lakh crore ($24 billion) in early 2026, dropping foreign ownership to 14.7%. Drivers include global AI/semiconductor trends, moderated corporate earnings (FY27 EPS 8–12%), increased 2024 LTCG tax, INR depreciation, rising US Treasury yields (10Y ~4.67%), and climbing Japanese Government Bond yields (10Y ~2.79%). The RBI utilized over $38 billion from its $690 billion forex reserves to stabilize the rupee, leading to domestic sectoral slowdowns and moderated GDP growth.
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