Key Points

According to a recent report by CareEdge Ratings, the CAD as a percentage of GDP is projected at 0.9 per cent in FY26.

The current account deficit (CAD) is an economic indicator that shows a country's total imports of goods, services, and transfers compared to its total exports and transfers to other countries.

The rating agency said India's domestic-driven economy, with a relatively low share of goods exports to the US, around 2 per cent of GDP, will provide some cushion against the tariff impact.

Exports to US in the first quarter of FY26, which accounts for 19.8 per cent of total exports, grew sharply by 22 per cent year-on-year. Exports to China also registered strong growth of 17.8 per cent.

The strong performance in exports to the US was mainly driven by electronic goods, which is exempted from tariffs and accounts for 30 per cent share in India's total exports to the US.

The report attributed this growth partly to front-loading of exports and the continuation of tariff exemptions for key sectors such as pharmaceuticals and electronics which are exempted from US tariffs.

However, the higher tariff rates compared to other economies have increased pressure on India to negotiate a trade deal with the US.

The report noted that while talks could be initiated, India is likely to remain cautious in opening up sensitive sectors such as agriculture and dairy.

This means negotiations may take longer to conclude. Currently, key sectors like pharmaceuticals and select electronics remain on the exemption list, but the possibility of tariffs being extended to these products still exists.

Sectors such as gems and jewellery, which fall under discretionary spending, could be affected by reciprocal tariffs.

The report also pointed out that some of India's competitors in the US market, such as Vietnam and Indonesia, may benefit from comparatively lower US tariffs, particularly in categories like footwear, textiles, and leather.

India's exports to Asia and Europe, which together account for 62 per cent of the country's total exports, saw a year-on-year decline in the first quarter of FY26.

However, despite the challenges from higher US tariffs, the report outlined that these factors should help India keep its current account deficit within manageable levels this year.

- ANI