Indian Economy : According to a new report, India's current account deficit (CAD) is estimated to be 1.2-1.5 percent of GDP in FY25. According to a Bank of Baroda (BOB) report, despite a high trade deficit, supported by a boom in service exports and strong remittances (labor or migrant transfers), the country's CAD narrowed to 1.2 percent of GDP in Q2 FY25. The capital account surplus increased due to foreign portfolio investor (FPI) inflows, while foreign direct investment flows (FDI) were higher. Due to which the balance of payments (BOP) surplus was recorded at $ 18.6 billion higher than $ 2.5 billion in Q2 FY24.

trade deficit widens

Aditi Gupta, economist at Bank of Baroda, said, "There has been no significant change in India's external sector outlook in the last few months. The sharp jump in the trade deficit in November 2024 has raised some concerns, but this may be a one-time occurrence, as the deficit is almost entirely due to a jump in gold imports." Overall, India's balance of payments was supported by strong flows from FPIs, ECBs and NRI deposits. Moreover, growth in merchandise imports is outpacing growth in merchandise exports, leading to a widening of the trade deficit over FY14-15.

Remittances have been resilient

"On the positive side, service exports have been resilient," Gupta said. "Remittances have also been resilient despite low oil prices. The growing threat of protectionist trade policy being implemented by the incoming US president will be a key risk to the external sector outlook," he added. "We expect the current account deficit to remain within the manageable range of 1.2-1.5 per cent of GDP in FY25," the report said.