Amid tariff tensions, India’s current account deficit may double to 1.2 pc of GDP in FY26, says UBI

NEW DELHI: India’s current account deficit (CAD) is expected to almost double in the current financial year FY26 to 1.2 per cent of gross domestic product (GDP), compared to 0.6 per cent in FY25, amid rising trade and geopolitical tensions, according to a report by Union Bank of India.

The report pointed out that India’s merchandise trade deficit widened sharply in July 2025 to $27.35 billion, compared with $18.7 billion in June. This sharp increase signals that the current account deficit may widen further in the second quarter of FY26. It stated, “CAD may almost double to 1.2 per cent of GDP amid trade & geopolitical tensions”.

A key factor weighing on the outlook is the recent tariff hike. From August 27, tariffs were raised by 50 per cent, which is expected to disrupt exports in several sectors, including textiles, gems and jewellery, auto components, chemicals, and shrimps. The report noted that the full impact of these disruptions will need close monitoring in the coming months.

At the same time, global commodity prices will play an important role in shaping India’s external balance. Oil and metals in particular remain under close watch. The report highlighted that India’s current account balance is highly sensitive to oil prices. Every $10 per barrel move in crude oil prices impacts the annual current account balance by nearly $15 billion.

Geopolitical risks, especially tariff concerns, will continue to influence India’s trade dynamics. Any trade deals signed by India with the US or Europe could also play a significant role in easing or worsening the external balance situation.

The report, however, also highlighted some positive factors. Lower oil prices, if sustained, could significantly support the current account dynamics. Moreover, services exports and remittances have so far shown resilience. If they continue to hold their momentum, India may see a positive surprise in its external position despite global trade tensions.

The report also cautioned that persistent trade tensions could pose a downside risk to domestic growth. Overall, the Union Bank of India report paints a cautious outlook, pointing to both risks and potential supports for India’s current account in the current financial year. (ANI)