Economists and market analysts are keeping a close watch on India’s current account deficit, estimated to range between 0.9 per cent and 1.3 per cent of GDP in 2025-26 amid upside risks from geopolitics, tariffs and non-tariff protectionist measures.
Merchandise trade is expected to see more volatility during FY26, and already there are signs of that in April, when export growth of 9.03 per cent was outpaced by imports of 19.12 per cent due to a rise in crude oil and fertiliser shipments. As a result, the trade deficit widened to a five-month high of $26.42 billion. However, net services trade and remittances are likely to lessen the impact on the current account during the year.
In FY24, the current account deficit (CAD) had narrowed to 0.7 per cent of GDP from 2 per cent of GDP in the previous year. In FY25, CAD is estimated to be at around 1 per cent of GDP.
Economists at Crisil, an S&P Global company, have projected the current account deficit at 1 per cent of GDP in FY25 and 1.3 per cent in FY26.
“The trade situation is expected to remain volatile this fiscal. While exports have stood ground so far, geopolitical uncertainties amid the US reciprocal tariffs, the ongoing trade deals among major economies and the resultant supply chain reorientation will bear watching.
“Imports will remain monitorable amid dumping fears as the US and China engage in a tariff war (despite the current truce, which could prove to be transitory). Consequently merchandise trade deficit could come under pressure. However, surplus in service trade and robust flow of remittances provide a cushion and should keep the current account in a safe zone,” Crisil said in a note last Friday.
“For FY26, we maintain our CAD/GDP forecast at 0.9 per cent, albeit with upside risks due to slower export growth in a tariff/trade war scenario, even as imports growth may also slow down with domestic demand being stagnant,” said Madhavi Arora, chief economist, Emkay Global Financial Services.
“Services exports, especially software services, face headwinds in FY26 from tariff-led global uncertainty, even as GCC-led business consulting and financial services could continue to see strong momentum,” said Arora.
“Overall, we expect the CAD to print at 0.8 per cent of GDP in FY25, before expanding slightly to 1 per cent of GDP in FY26 (baseline), even as the tariff-related uncertainty could act as a spoiler,” said Aditi Nayar, chief economist and head of research and outreach, Icra.
Analysts at CMIE said that the outlook for merchandise exports in FY26 remains muted due to ongoing global trade tensions. The likely imposition of tariffs on drugs and pharmaceutical products by the US would weigh on sectoral performance. While the recently signed India-UK FTA offers potential benefits for exports, it would take at least 10-15 months for full implementation.