Despite tariff, geo-political challenges, India’s CAD to remain under 1 pc of GDP: Crisil

NEW DELHI: India’s current account deficit (CAD) is expected to remain under control at 1 per cent of gross domestic product (GDP) in the current financial year, even as the economy faces challenges from higher tariffs and global geopolitical headwinds, according to a report by Crisil.

The rating agency said that despite these challenges, the deficit will stay manageable, supported by strong growth in services trade, steady remittances from overseas Indians, and softer crude oil prices. It stated, “India’s current account deficit (CAD) is expected to remain manageable…we forecast CAD to be at 1 per cent of GDP this fiscal”.

The uncertainty on trade front is because US has increased tariffs on Indian exports, particularly due to purchases of Russian oil. From August 27, a 25 per cent additional penalty tariff was imposed on Indian exports to the US, on top of the earlier 25 per cent reciprocal tariff. This has raised the total tariff burden to 50 per cent.

The report noted that it is still uncertain where the tariff rates will finally settle as negotiations are continuing, but the higher duties may create challenges for India’s exports. To reduce the impact, India is actively working on trade agreements with other countries.

Meanwhile, the latest trade data of August showed some encouraging signs. The merchandise exports rose 6.7 per cent on-year in August 2025 to $35.10 billion, compared with $32.89 billion in August 2024. Exports had grown 7.3 per cent in July 2025. Growth in August was supported by broad-based gains in oil, gems and jewellery, and core exports.

At the same time, imports recorded a sharp fall. Merchandise imports dropped 10.1 per cent on-year to $61.59 billion in August, compared with $68.53 billion a year earlier. This helped bring down the merchandise trade deficit to $26.49 billion from $35.64 billion in the same month last year.

The report also pointed out that while export growth to the US slowed, but shipments to other markets have improved. Non-US exports rose 6.6 per cent year on-year in August, faster than the 4.3 per cent growth in July. On the import side, gems and jewellery imports saw a significant contraction of 51.2 per cent in August, which contributed to the overall decline in imports.

The report outlined that the combination of resilient services trade, steady inflows from remittances, softer crude oil prices, and a narrowing trade deficit will help keep the CAD at a manageable level this fiscal despite the global and tariff-related challenges. (ANI)