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The domestic current account deficit (CAD) is expected to remain largely in check at around 1.2-1.5 per cent of the GDP in FY26, according to a report by Bank of Baroda.
However, the report highlighted that progress on the ongoing US-India trade talks will be a crucial factor to monitor going forward. It stated "the US is a major destination for India's electronic exports, and the sector is currently exempted from the higher US tariffs... Progress on US-India trade talks will be a crucial factor to monitor going forward." The report pointed out that India's trade deficit is tracking higher so far in FYTD26 compared with the same period last year. Although exports have risen over the previous year, import growth continues to outpace the growth in exports, leading to a widening trade deficit. Within imports, the non-oil-non-gold segment has shown a pickup, reflecting an improvement in domestic demand conditions. The report noted that this trend is likely to continue, supported by festive season demand in the coming months. Gold imports are also expected to be higher in the second half of the year due to seasonal demand patterns. However, some relief may come from lower oil prices, which are anticipated to remain at current levels amid expectations of oversupply in the global market. On the export front, growth has remained stable, with encouraging signs of diversification into new markets. The report observed that India's exports to other Asian partners such as China, Hong Kong, and South Korea have been higher than last year, both in terms of growth and their share in total exports. Similarly, exports to key European countries like Spain and Germany have shown significant traction this year. The report said this trend is a positive development and is expected to support export growth in the remaining months of FY26. In terms of invisibles, the position is projected to remain largely steady. Overall, the report concluded that India's external position remains stable, with the current account deficit expected to stay within manageable levels. However, it highlighted that developments in trade negotiations between India and the US will remain an important aspect to watch in the coming quarters. (ANI)
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