India's Current Account Deficit to Nearly Double Amid Trade Tensions: Union Bank Report
India's current account deficit is projected to double in FY26 to 1.2% of GDP, driven by rising trade tensions, tariff hikes, and global commodity price sensitivity. While oil prices and geopolitical risks pose challenges, resilient service exports and remittances offer a glimmer of hope, says Union Bank of India.
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- India
India is bracing for an increase in its current account deficit (CAD), with projections pointing to a near doubling to 1.2% of GDP in the financial year 2026, up from 0.6% in FY25. This outlook is detailed in a report by Union Bank of India, largely attributed to escalating trade tensions and geopolitical factors.
The report highlights a sharp increase in India's merchandise trade deficit, reaching USD 27.35 billion in July 2025, compared to USD 18.7 billion in the previous month. Such developments are anticipated to widen the CAD further in the second quarter of FY26 as per the report's analysis.
Recent tariff hikes are a central concern, disrupting exports across critical sectors like textiles and auto components. The report underscores the need for monitoring these disruptions closely. Additionally, fluctuations in global commodity prices, particularly oil, have significant implications for India's external balance, with a USD 10 change in crude prices impacting the CAD by an estimated USD 15 billion annually. Meanwhile, the potential for new trade agreements with major economies could alter this balance, amid ongoing geopolitical risks.
(With inputs from agencies.)
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