India’s current account deficit (CAD) is projected to widen to approximately 1.7% of GDP in the fiscal year 2025-26, up from earlier forecasts of 1.2%. This outlook comes from a recent report by the Union Bank of India.
Key Highlights
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The report states: “We expect a rise in current account deficit to 1.7 per cent of GDP in FY26, as global trade tariff pressures continue to keep the trade-deficit elevated.”
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Although lower global commodity prices—particularly oil—and strong service-exports remain tailwinds, elevated trade pressures and a widening goods trade deficit are the major risk factors.
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The CAD’s sensitivity to crude-oil prices remains high: every US$10 per barrel move in oil impacts the annual current-account balance by about US$15 billion.
Why This Matters
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A CAD of 1.7% of GDP marks a notable increase from recent years, signalling potential external-sector stress and possibly higher currency/financing risk.
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With the CAD widening, the country could face larger external-financing needs, putting pressure on foreign-capital flows and possibly increasing vulnerability to shocks (e.g., rising oil prices or renewed trade-tariff escalation).
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For investors and business-advisors, large CAD implies heightened focus on currency-risk, import-exposure, export-resilience and external-borrowings.
Implications for Clients, Portfolios & Businesses
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For clients: With external vulnerabilities rising, portfolios may need more diversification (including into assets less sensitive to rupee performance or external-shock risks).
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For businesses: Companies heavy on imports (particularly energy or commodity inputs) or reliant on exports may face margin or currency-headwind risk. Those with strong domestic-demand, low import-dependency may be better positioned.
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For wealth-managers: Emphasise monitoring of macro-indicators such as CAD, currency movements, and global commodity/energy price trends, in addition to the usual interest-rate/inflation risks.
What to Monitor Next
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Monthly and quarterly current-account updates to see if the 1.7 % figure is tracking.
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Crude-oil price behavior and global commodity trends, as they remain key determinants of India’s external balance.
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Progress in trade-deal negotiations (for instance between India and the USA), tariff actions or retaliations, which could affect goods-exports/imports.
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Signs of capital-flow stress, currency depreciation or higher cost of external-borrowing that might stem from a larger CAD.
The projected rise in India’s CAD to 1.7% of GDP in FY26 marks a caution-flag for external-sector vulnerability. For advisers and clients, this reinforces the need to monitor external-economy risks in tandem with domestic growth/interest-rate/inflation dynamics.
Source: The Economics Times