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India's current account deficit is likely to see a sharp downside risk for FY25 GDP, as seen in the sharp positive surprise in February trade data according to a report by the Union Bank of India (UBI). India's trade deficit for February 2025 has seen a rare surplus of USD 14.05 billion.
"With the sharply positive surprise in trade data, we see a downside risk to our earlier FY25 C/A deficit projection of 1.2 per cent." said the report The report, however, adds that as the uncertainties surrounding export dynamics and commodity prices persist, they maintain a CAD of 1.2 percent for FY26. "We maintain our FY26 C/A deficit forecast at 1.2 per cent of GDP, as the outlook for exports remains uncertain due to the looming threat of reciprocal tariffs the US plans to impose on trading partners starting 2nd April," the report added. According to the February trade data, merchandise exports contracted by 10.9 percent YoY to USD 36.91 billion, marking the sharpest decline in 20 months. However, imports fell even more sharply, dropping 16.3 per cent YoY to USD 50.96 billion, leading to a narrowing of the merchandise trade deficit. The fall in global oil prices, combined with reduced demand for gold and non-oil, non-gold (NONG) imports, played a key role in this improvement. Oil imports, in particular, saw a decline in the deficit due to the drop in global Brent crude prices, while gold imports also moderated due to higher prices that limited demand. On the other hand, services trade remained robust, with a surplus of USD 18.48 billion in February, up slightly from USD 18.02 billion in January. This continued strength in services exports provides a positive offset to the trade deficit, particularly in a global economy that is showing signs of slowing down. As a result, India's total trade balance, including both goods and services, flipped to a surplus of USD 4.43 billion, contrasting sharply with the record trade deficit of USD 18.05 billion in the previous month. The gold deficit continued to narrow in Feb'25 after surging to record highs in Nov'24 led by the festival and wedding season. There was moderation in gold imports in terms of volume to 25.1 tons in Feb'25 vs. 30.8 tons in Jan'25 and c. 100 tons in Nov'24 amidst a surge in prices. Despite ongoing geopolitical tensions and global tariff concerns, India's trade sector has demonstrated resilience. The country's export growth reflects the strength of its trade policies and the sustained demand for Indian goods and services in the global market. (ANI)
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