India's current account deficit (CAD) is expected to remain within a manageable range of approximately 1% of GDP for fiscal year 2025, slightly up from 0.7% in the previous year, according to a report by CRISIL. While global geopolitical risks pose a potential challenge, strong financial inflows and a consistent surplus in services trade are anticipated to offer stability to the country's external sector.
For the second quarter (Q2) of fiscal 2025, India's CAD stood at USD 11.2 billion, which accounted for 1.2% of GDP. This is almost unchanged from the previous year’s USD 11.3 billion (1.3% of GDP). However, there was a slight sequential increase from USD 10.2 billion (1.1% of GDP) in Q1 of fiscal 2025, as reported by the Reserve Bank of India.
The increase in CAD was driven by a rise in the merchandise trade deficit, primarily due to higher import costs. However, the report emphasized that the robust services sector, especially information technology and business services, continues to generate significant surplus, helping mitigate the pressure from the widening goods trade deficit.
Despite global economic uncertainties and ongoing geopolitical risks, the country's financial account remains strong, with foreign direct investment (FDI) inflows and other capital investments supporting overall economic stability. CRISIL noted that the stable CAD is an encouraging indicator for India’s economic resilience, as it reflects the ability to finance the deficit without putting undue pressure on the country’s foreign exchange reserves.
As India continues to navigate global economic fluctuations, careful monitoring of external risks and maintaining strong financial inflows will be crucial to managing its current account deficit and sustaining overall economic health.
