India’s current account deficit stays manageable

New Delhi

India’s current account deficit (CAD) is expected to remain in a safe range during 2025-26, supported by strong service exports and remittances from overseas workers, according to a Crisil report released Wednesday.

The report estimates CAD at 1.3% of GDP for 2025-26, slightly higher than the 1% projected for 2024-25. In the third quarter of 2024-25, CAD stood at $11.5 billion, or 1.1% of GDP, compared to $10.4 billion in the same period last year. However, it narrowed from $16.7 billion in the previous quarter.

Despite an increasing merchandise trade deficit, India benefited from a strong services surplus and remittances. The widening trade deficit was mainly due to a weaker oil trade balance, as oil exports declined while imports rose.

Foreign capital saw a net outflow during the third quarter, leading to a 1.6% rupee depreciation, from 83.2 to 84.5 per US dollar. The financial accounts recorded outflows across all segments, with foreign portfolio investors withdrawing $11.4 billion.

India’s forex reserves fell by $37.7 billion in the third quarter due to these outflows. However, the Reserve Bank of India intervened to stabilize the rupee, leading to a recovery in forex reserves, which stood at $658.8 billion as of March 21, up from $644.4 billion at the quarter’s end.

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India resilient to US tariff shocks

India’s economy is less vulnerable to US tariff shocks than other nations, according to a new report. India’s large domestic market and low dependence on US exports help protect it. Moody’s predicts India's GDP growth at 6.5% for 2025-26, the highest in the G-20 group, supported by tax cuts and reduced inflation. With inflation expected to average 4.5%, India can benefit from a soft money policy, encouraging economic growth. Compared to smaller nations, India is better positioned to handle global market fluctuations, thanks to its diversified economy and low external vulnerabilities.