India's current account deficit may double to 1.2% of GDP in FY26, focus on oil prices: Report

India's current account deficit is projected to nearly double in the financial year 2025-26, increasing from 0.6 per cent to 1.2 per cent of GDP FY25, according to a report by Union Bank of India.

The estimate has an upward risk due to changing trade conditions and fluctuations in global commodity prices.

"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," news agency ANI quoted the report.

The report noted that geopolitical factors, such as tariff issues and possible trade deals between India and the US or Europe, are likely to greatly influence trade patterns.

Focus on oil prices

Oil prices continue to be a crucial factor, with estimates indicating that a $10 per barrel change could influence the annual current account balance by about $15 billion. When oil prices drop, the current account balance might benefit, due to its high sensitivity.

Although the deficit is expected to widen, the overall current account should stay manageable. This is mainly due to a solid invisible surplus, fueled by a strong services trade surplus of $188.75 billion in FY25. In comparison, the oil import deficit for the same period is $122.45 billion.

India's merchandise trade deficit increased significantly in July this year, reaching $27.35 billion compared to $18.78 billion the previous month. This level, last seen in November 2024, was driven by the normalisation of imports after a temporary spike last month, even as the pattern of frontloading exports continued.

The rate of import growth, especially in fossil fuels and capital goods, greatly exceeded export gains, creating an imbalance and increasing concerns about sustainability amid changing global trade dynamics, it added.

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

The oil trade deficit also grew, amounting to $11.24 billion versus $9.19 billion last month. At the same time, the gold trade deficit nearly doubled, increasing to $3.83 billion from $1.76 billion in June 2025.

The services trade surplus experienced a slight month-on-month fall after an upward revision to the data recorded in June.

The Services trade surplus decreased to $15.63 billion in July 2025 from $16.21 billion in the previous month. The average for April to July 2025 was $15.88 billion, compared to $13.59 billion during the same period last year.

The total trade deficit, including both goods and services, surged to a double-digit figure in July 2025, reaching $11.72 billion, compared to $2.57 billion last month.

(With inputs from ANI.)