India's Current Account Deficit Expected to Stay Between 1.2% and 1.5% of GDP in FY25
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New Delhi, Dec 28 (NationPress) India's current account deficit (CAD) is expected to remain within a manageable range of 1.2-1.5 percent of GDP in FY25, according to a recent report.
During Q2 FY25, the country's CAD decreased to 1.2 percent of GDP from 1.3 percent in Q2 FY24, despite an increased trade deficit, thanks to robust services exports and strong remittances, as highlighted in a report by Bank of Baroda (BoB).
The capital account surplus grew, primarily driven by inflows from foreign portfolio investors (FPI), while foreign direct investment (FDI) outflows saw an uptick. Consequently, the balance of payment (BoP) surplus rose significantly to $18.6 billion compared to $2.5 billion in Q2 FY24.
According to Aditi Gupta, an economist at Bank of Baroda, “India's external sector outlook has not materially changed in recent months. Although the significant increase in trade deficit in November 2024 has raised concerns, it is likely a one-time event, largely due to a spike in gold imports.”
Overall, India's balance of payments benefited from strong inflows from FPIs, external commercial borrowings (ECBs), and non-resident Indian (NRI) deposits.
Moreover, growth in merchandise imports continues to exceed that of goods exports, resulting in a widening trade deficit on a financial year-to-date (FYTD) basis (April-November).
“On a positive note, services exports have shown resilience, which has been crucial in keeping the CAD at comfortable levels,” Gupta added.
“Remittances have also remained strong despite lower oil prices. However, the potential for a protectionist trade policy from the incoming US President poses a significant risk to the external sector outlook,” she noted.
In conclusion, “we anticipate that the CAD will remain within a manageable range of 1.2-1.5 percent of GDP in FY25,” the report stated.
