The Egyptian rallied after losing the opening game over extra points to win 12-14, 11-5, 11-6, 11-7 in 59 minutes late on Wednesday, according to information received here.
"Today was a tough day and I had to fight until the end," Gawad was quoted as saying by the PSA Tour website.
"Even when I was 10-6 up in the fourth, I knew he could come back easily with his awesome winners, so I knew I had to push until the end," he added.
Ghosal had posted wins over ninth-seed James Willstrop and Ben Coleman to reach the last 16.
Two of his compatriots Harinder Pal Sandhu and Mahesh Mahesh Mangaonkar, who came through the qualifying draw, lost in the first round.
In the women's event, the country's leading players Joshna Chinappa and Dipika Pallikal Karthik crashed out in the opening round.