New Delhi: India's current account deficit is expected to face significant downside risks for FY25 GDP, following an unexpectedly positive trade report for February, as indicated by a Union Bank of India (UBI) analysis. Notably, India's trade deficit for February 2025 recorded a rare surplus of USD 14.05 billion.
"The unexpectedly favorable trade data suggests a potential downside risk to our previous FY25 current account deficit estimate of 1.2 percent," the report stated.
Nevertheless, the report cautions that ongoing uncertainties regarding export trends and commodity prices lead them to uphold a current account deficit projection of 1.2 percent for FY26.
"We are maintaining our FY26 current account deficit forecast at 1.2 percent of GDP, given the uncertain export outlook due to the impending threat of reciprocal tariffs that the US intends to implement on its trading partners starting April 2," the report further noted.
According to the February trade figures, merchandise exports fell by 10.9 percent year-on-year to USD 36.91 billion, marking the steepest decline in 20 months.
In contrast, imports experienced an even sharper decline, decreasing by 16.3 percent year-on-year to USD 50.96 billion, which contributed to a reduction in the merchandise trade deficit.
The decline in global oil prices, along with decreased demand for gold and non-oil, non-gold (NONG) imports, significantly contributed to this positive shift.
Oil imports experienced a reduction in the deficit, primarily due to falling global Brent crude prices, while gold imports also decreased as rising prices curtailed demand.
Conversely, the services sector remained strong, achieving a surplus of USD 18.48 billion in February, a slight increase from USD 18.02 billion in January.
This ongoing strength in service exports serves as a beneficial counterbalance to the trade deficit, especially in a global economy that is beginning to show signs of deceleration.
Consequently, India's overall trade balance, encompassing both goods and services, shifted to a surplus of USD 4.43 billion, a significant improvement from the record trade deficit of USD 18.05 billion recorded the previous month.
The gold deficit continued to decrease in February 2025 after reaching unprecedented levels in November 2024, driven by the festival and wedding season.
Gold imports saw a decline in volume, totaling 25.1 tons in February 2025 compared to 30.8 tons in January 2025 and approximately 100 tons in November 2024, amid rising prices.
Despite persistent geopolitical tensions and global tariff issues, India's trade sector has shown remarkable resilience.
The growth in exports reflects the effectiveness of India's trade policies and the sustained demand for its goods and services in the international market.
