India's current account deficit likely to widen to 1.2% of GDP in FY26: Report

The estimate carries an upward risk, driven by evolving trade dynamics and global commodity price movements.

"We see an upward risk to our estimate for the current account (C/A) deficit for FY26 GDP. We expect higher; almost double versus last year of widening in C/A deficit in FY26 to 1.2 per cent in GDP vis-a-vis an 0.6 per cent in FY25," the report added.

The report added that the geopolitical developments, including tariff concerns and potential trade agreements between India and the US or Europe, are expected to play a significant role in shaping trade dynamics.

Oil prices remain a key factor, with estimates suggesting that every USD 10 per barrel move in oil prices could impact the annual current account balance by approximately USD 15 billion. Lower oil prices may provide support to the current account balance, given the high sensitivity, the report added.

Union Bank of India's report added that despite the expected widening of the deficit, the overall current account position is expected to remain manageable. This is supported by a strong invisible surplus, driven by a robust services trade surplus of USD 188.75 billion in FY25. This compares against an oil import deficit of USD 122.45 billion for the same period.

India's merchandise trade deficit widened sharply in Jul'25, reaching USD 27.35 billion in Jul of the current year, vis-a-vis USD 18.78 billion a month ago -- levels last seen in November 2024 -- driven by normalisation in imports post a temporary blip last month, even as the theme of frontloading of exports continued to persist.

The pace of import growth, particularly in fossil fuels and capital goods, significantly outpaced export gains, resulting in an imbalance and rising concerns about the sustainability amid shifting global trade dynamics.

In terms of sub-segments, trade dynamics in Jul'25 were broadly driven by widening across all three majorcomponents. The NONG (Non-Oil, Non-Gold) trade deficit saw the sharpest increase, rising to USD 12.28 billion from USD 7.83 billion in Jun'25.

The oil trade deficit also expanded, reaching USD 11.24 billion compared to USD 9.19 billion the previous month. Meanwhile, the gold trade deficit nearly doubled, surging to USD 3.83 billion from USD 1.76 billion in Jun'25.

Services trade surplus saw a slight MoM decline, after an upward revision to June's data.

The Services trade surplus eased to USD 15.63 billion in Jul'25 vis-a-vis USD 16.21 billion last month, versus an average USD 15.88 billion in Apr-Jul'25, which was USD 13.59 billion in the same period last year.

Total trade deficit (goods and services combined) spiked to double-digit levels in Jul'25, to USD 11.72 billion, vis-a-vis USD 2.57 billion last month. (ANI)