US President Trump’s 50 percent tariff on Indian goods is expected to have a limited impact on the current account deficit (CAD), given that exporters have front-loaded shipments to US so far this fiscal, and crude oil prices have remained benign despite the risk of disruption, several economists have told Moneycontrol.
“There will be some hit to the CAD, but it will not be destabilising for the economy even If US tariffs stay at 50 percent. What we are seeing is that reserves are somewhere around 11 months of imports, which is a relief. If you look at our total exports to the US, they are about 2 percent of the GDP. Some of the frontloading of exports to the US by August 27 will help shield the hit to exports, as well as lower crude oil prices,” Devendra Kumar Pant, Chief Economist, India Ratings said.
The key benchmark for crude oil has continued to hover well-below the $70 per barrel mark, helping soften the hit on India’s overall import bill. This is crucial, since New Delhi sources over 80 percent of its crude oil from international markets.
“Even at 50 percent, the impact on CAD in FY26 is limited due to a low base, we would have seen CAD as percentage of GDP at 1 percent without elevated tariffs, but now the most it can rise to is 1.5 percent. As long as it stays below 2 percent, there is little to worry, because on CAD we are coming from a place of strength,” Gaura Sengupta, Chief Economist, IDFC First Bank said.
India’s CAD had improved to 0.6 percent of GDP in FY25, a slight reduction as compared to 0.7 percent in FY24.
As long as crude prices do not flare up, the import bill will stay under control. The exports too have been frontloaded as of August, Gaura added.
Indian exporters have rushed their US-bound shipments ahead of the August 27 tariff deadline. Exports to America have risen around 22 percent on-year so far in this fiscal till July, which is higher than the trend of 17-18 percent growth rate. Economists fear that any slowdown in exports could raise concerns for the current account deficit, which is the broadest measure of trade in goods and services.
Emkay Global’s Chief Economist Madhavi Arora said the CAD as a percentage of GDP may rise to 1.2 percent if tariffs stay elevated, while DK Srivastava, Chief Policy Advisor with EY India said he is more optimistic and puts the deficit at only 0.3 percent of FY26 GDP.
The main reason for this is a relatively high growth rate for transfers and net income, which is a key component in determining current account deficit, EY India’s DK Srivastava said.
India’s merchandise trade deficit for July has widened to an eight-month high of $27.35 billion from $18.78 billion in June, official data showed, with both exports and imports up on-year by 7.3 percent and 8.6 percent, respectively.
EY India’s Srivastava said he sees the total net loss in exports due to tariffs to be limited to less than 0.2 percent of GDP, after taking into account the impact of diversification of affected goods to other destinations and a partial continuation of shipments to the US owing to inelastic demand.
“This limited impact of 0.2 percent of GDP can be almost fully neutralised by increasing the share of purchase of crude oil from Russia in our total oil imports by about 5 percentage points from current levels and by marginally raising the percentage of discount at which India is able to purchase crude from Moscow. As long as India continues to buy crude oil from Russia in reasonable quantities, global crude prices will remain moderate and may fall from current levels,” Srivastava added.
The Economic Survey for 2024-25 had estimated India’s real GDP growth in FY26 between 6.3-6.8 percent. However, economists have cautioned that in the second-half of the fiscal, growth in merchandise export may be weaker if Trump’s 50 percent tariff on India stays on till March 2026.
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