Trade balance: India’s current account deficit may double to 1.2% of GDP in FY26, says Union Bank report

India’s current account deficit (CAD) is projected to nearly double in the next fiscal, touching 1.2 per cent of GDP in FY26 compared with 0.6 per cent in FY25, Union Bank of India said in a report.The bank cautioned that evolving trade dynamics, global commodity prices, and geopolitical developments could add further pressure. “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,” the report said, quoted ANI.Union Bank highlighted that tariff concerns and potential trade agreements with the US and Europe will significantly influence India’s external balance.

Oil remains the most critical factor, with the report estimating that every $10 per barrel change in crude prices could alter the annual current account balance by nearly $15 billion. Lower oil prices, it said, may provide relief given India’s high import dependence.Despite the projected widening, the bank expects the CAD to remain manageable, supported by a strong invisible surplus. India recorded a services trade surplus of $188.75 billion in FY25, offsetting much of the $122.45 billion oil import deficit in the same year.

The report noted that India’s merchandise trade deficit surged sharply in July 2025, rising to $27.35 billion from $18.78 billion in June — levels last seen in November 2024. The spike was attributed to a normalisation in imports after a temporary dip, even as exporters continued to frontload shipments.The pace of import growth, particularly in fossil fuels and capital goods, outstripped export gains, raising concerns over sustainability.

Within sub-segments, the non-oil, non-gold (NONG) trade deficit rose to $12.28 billion in July from $7.83 billion a month earlier. The oil trade deficit widened to $11.24 billion from $9.19 billion, while the gold deficit nearly doubled to $3.83 billion from $1.76 billion.Services trade surplus eased marginally to $15.63 billion in July 2025, from a revised $16.21 billion in June. Still, the April–July 2025 average of $15.88 billion was stronger than the $13.59 billion recorded in the same period last year.Overall, the combined goods and services trade deficit spiked to $11.72 billion in July 2025, compared with $2.57 billion in June, underscoring rising pressure on the external account.