NewKerala.com

Key Points

India's current account deficit is projected to nearly double this financial year. This is driven by a sharp widening of the merchandise trade deficit and new disruptive tariffs. Global oil prices remain a critical factor, heavily influencing the external balance. However, resilient services exports and remittances could provide a positive surprise.

Key Points: India Current Account Deficit May Double to 1.2% GDP in FY26

  • Merchandise trade deficit surged to $27.35B in July 2025 from $18.7B in June
  • New 50% tariffs expected to disrupt key export sectors like textiles and gems
  • Every $10/barrel oil price move impacts annual CAD by nearly $15 billion
  • Services exports and remittances show resilience, offering potential support
2 min read

Amid tariff tensions, India's current account deficit may double to 1.2% of GDP in FY26: Union Bank of India

Union Bank of India warns India's CAD could hit 1.2% of GDP amid tariff tensions and a widening trade deficit, with oil prices playing a key role.

"CAD may almost double to 1.2 per cent of GDP amid trade & geopolitical tensions. - Union Bank of India Report"

New Delhi, September 3

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 with 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 USD 27.35 billion, compared with USD 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 USD 10 per barrel move in crude oil prices impacts the annual current account balance by nearly USD 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

Share this article:

Reader Comments

P
Priya S
The silver lining is that services exports and remittances are holding up. Our IT sector continues to be our strength. Hope the government provides more support to service industries to counterbalance the merchandise trade deficit.
A
Aman W
Oil prices remain the wild card. If global crude stays stable, we might weather this better. The government's strategic petroleum reserves and diversification of energy sources should help cushion the impact.
S
Sarah B
The 50% tariff hike is really hurting small exporters. Many family businesses in textiles and gems are struggling. Government should provide immediate relief packages for these sectors. 🙏
V
Vikram M
While the situation looks challenging, let's not panic. 1.2% CAD is still manageable compared to historical highs. RBI has sufficient forex reserves to handle this temporary phase. Focus should be on long-term trade agreements.
N
Nikhil C
The government needs to be more proactive in trade negotiations. We're losing precious time while other emerging markets are signing favorable deals. Our diplomatic corps should prioritize economic diplomacy right now.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50