India's current account deficit likely to widen to 1.7% of GDP in FY26 amid ongoing tariff pressures: report

India’s current account deficit (CAD) is expected to rise to 1.7% of GDP in FY26, according to a report by Union Bank of India, which cited persistent tariff pressure as the primary reason.

The latest CAD projection is higher than the bank’s earlier estimate of 1.2% of GDP, as global trade tariff pressures have kept the trade deficit elevated despite weak demand and lower commodity prices.

“We expect a rise in current account deficit to 1.7 per cent of GDP in FY26, as global trade tariff pressures continue to keep the trade deficit elevated,” said the report, as seen by ANI.

A current account deficit (CAD) occurs when a country’s total imports of goods, services, and capital exceed its total exports and income from abroad, indicating that more money is flowing out of the economy than flowing in.

Mitigating factors

The Union Bank's report also noted that the trade deficit may witness seasonal pressures due to the heightened festive demand. However, lower commodity prices, especially oil, may help offset the overall impact.

As India's current account is highly sensitive to fluctuations in crude prices, subdued oil prices could aid in supporting the country's external balance, ANI reported.

Every $10 per barrel move in oil prices affects the annual current account balance by close to $15 billion. This sensitivity means lower oil prices are likely to have a “salutary effect” on India's trade dynamics, the report said.

However, risks to the current account outlook have intensified due to volatile commodity prices, particularly crude oil, and the possibility of prolonged export weakness if the US-India trade deal impasse continues.

India-US BTA's impact on exports

The report pointed out a potential positive development with the India-US Bilateral Trade Agreement (BTA), which is nearing finalisation, possibly by late November. The agreement is expected to cut tariffs from 50% to 15-16%.

Although the near-term impact may be limited, the BTA is expected to strengthen India's export base over time and partially relieve trade balance pressures in the upcoming quarters, ANI reported.

Record trade deficit in October

India's merchandise trade deficit widened to a record high of $41.68 billion in October 2025, up significantly from $32.15 billion in the previous month. The figure surpassed market expectations.

The gold deficit also surged to record levels in October, driven by strong demand during the festive and wedding seasons, combined with pent-up buying following subdued imports earlier in the year. This led to a sharp increase in gold inflows during the period.

While gold imports in November are expected to moderate in volume, their value is likely to remain elevated due to strong investment demand despite the metal's high prices.