India's CAD May Nearly Double To 1.2% Of GDP In FY26 Amid Tariff Tensions: Union Bank

India's current account deficit (CAD) is expected to almost double in the current financial year, FY26, to 1.2 per cent of gross domestic product (GDP), compared with 0.6 per cent in FY25, amid rising trade and geopolitical tensions, according to a report by Union Bank of India. The report pointed out that India's merchandise trade deficit widened sharply in July 2025 to USD 27.35 billion, compared with USD 18.7 billion in June.

This sharp increase signals that the current account deficit may widen further in the second quarter of FY26. It stated,“CAD may almost double to 1.2 per cent of GDP amid trade & geopolitical tensions.”

A key factor weighing on the outlook is the recent tariff hike. From August 27, tariffs were raised by 50 per cent, which is expected to disrupt exports in several sectors, including textiles, gems and jewellery, auto components, chemicals, and shrimps.

The report noted that the full impact of these disruptions will need close monitoring in the coming months.

At the same time, global commodity prices will play an important role in shaping India's external balance. Oil and metals in particular remain under close watch.

The report highlighted that India's current account balance is highly sensitive to oil prices. Every USD 10 per barrel move in crude oil prices impacts the annual current account balance by nearly USD 15 billion.

Geopolitical risks, especially tariff concerns, will continue to influence India's trade dynamics. Any trade deals signed by India with the US or Europe could also play a significant role in easing or worsening the external balance situation.

The report, however, also highlighted some positive factors. Lower oil prices, if sustained, could significantly support the current account dynamics.

Moreover, services exports and remittances have so far shown resilience. If they continue to hold their momentum, India may see a positive surprise in its external position despite global trade tensions.

The report also cautioned that persistent trade tensions could pose a downside risk to domestic growth.

Overall, the Union Bank of India report paints a cautious outlook, pointing to both risks and potential supports for India's current account in the current financial year.

MENAFN03092025007385015968ID1110009560