New Delhi
According to a new report, India’s current account deficit (CAD) is estimated to be 1.2-1.5 percent of GDP in FY 2025. Despite a higher trade deficit supported by a pick-up in services exports and strong remittances (labor or migrant transfers), the country’s CAD is set to reach 1.2 per cent of GDP in Q2FY25, according to a Bank of Baroda (BoB) report. Shrinked.
The capital account surplus increased due to foreign portfolio investor (FPI) inflows, while foreign direct investment flows (FDI) were recorded higher. Due to which the balance of payments (BoP) surplus was recorded at $ 18.6 billion more than $ 2.5 billion in the second quarter of FY 2024. Bank of Baroda economist Aditi Gupta said, “There has been no significant change in India’s external sector outlook in the last few months. “The sharp jump in the trade deficit in November 2024 has raised some concerns, but this may be a one-time thing, as the deficit is almost entirely driven by the surge in gold imports.”
Overall, India’s balance of payments was supported by strong inflows from FPI, ECB and NRI deposits. Furthermore, growth in merchandise imports is outpacing growth in merchandise exports, leading to a widening of the trade deficit as of FY 2014-15.
“The positive side is that services exports have been resilient,” Gupta said. “Despite low oil prices, remittances have also been resilient,” he said. “The growing threat of protectionist trade policies being implemented by the incoming US President will be a major threat to the external sector outlook.” “We expect the current account deficit to remain within the manageable range of 1.2-1.5 percent of GDP in FY2025,” the report said.
