NEW DELHI: India’s current account deficit (CAD) will remain within a manageable range for both FY25 and FY26, largely due to muted oil prices that are expected to support the country’s external financial position, projected a recent report by Bank of Baroda.
Despite global market volatility, the report stated that steady oil prices at current levels are a favorable factor for India’s import bill, helping to balance its trade dynamics.
While India’s import costs could still be impacted by higher commodity prices, the report expects this increase to be modest. It pointed out that oil prices are a positive factor for the country. “Overall, while we expect CAD to be within a manageable range in both FY25 and FY26, the Indian rupee (INR) is likely to remain under pressure in the near-term”, stated the report.
However, India’s merchandise trade deficit, which rose to a 13-month high of $27.1 billion in October 2024, poses some challenges. This widening was driven by increased imports of oil and gold, although export growth also showed strength, rising by 17.3 per cent in October, primarily due to non-oil exports.
“India’s merchandise trade deficit widened to a 13-month high of $27.1bn in Oct’24, led by a pickup in oil and gold imports” said the report. For the fiscal year to date in FY25, the trade deficit has trended higher than in the previous year, partly due to corrections in global commodity prices.
Looking ahead, the report indicated that export growth will depend on global trade trends, with concerns about rising U.S. protectionism potentially affecting India’s trade outlook. It added, “This is because the recent bout of weakness in INR is stemming purely from exogenous factors including a stronger dollar and capital flight from EM markets”.
Additionally, the Indian rupee has faced pressure recently, mainly due to external factors such as a stronger U.S. dollar and capital outflows from emerging markets, which have impacted INR’s stability.
The report expects India’s CAD to stay around 1.2 per cent-1.5 per cent of GDP in FY25–a manageable level for the economy. Nonetheless, ongoing capital flight from the domestic market could continue to weigh on the rupee, which is projected to trade with a depreciating bias in the near-term. (ANI)
