India Ratings and Research (Ind-Ra) expects the country's current account balance (CAB) to have registered a surplus of around USD7 billion (0.7 per cent of GDP) in the fourth quarter of recently concluded financial year 2024-25, higher than USD 4.6 billion (0.5 per cent of GDP) in the corresponding quarter of 2023-24.
CAB was in surplus, after a gap of three quarters in January-March 2025 quarter.
The global trading order is up for a complete reset with the announcement of reciprocal tariffs by the US in early April 2025.
Notwithstanding the pause in the tariff order thereafter, the global economic uncertainty has touched unprecedented levels with the various business and investment decisions being weighed down against the prospective path of the trade deals that the US would have with its various trading partners.
"This will significantly hamper the global trading activity which was progressing well amid the prevailing uncertainty during 4QFY25," India Ratings forecast.
The global goods trade grew 4.5 per cent year-on-year during 4Q-2024-25, the sharpest pace of expansion in 10 quarters.
However, the goods trade is up for a stall in 2025-26 as indicated by the World Trade Organisation (WTO)'s latest global trade outlook for 2025.
The merchandise goods trade volume is expected to contract 0.2 per cent year-on-year in 2025 from its baseline forecast (without the recent policy shifts) of 2.7 per cent year-on-year for 2025.
The global manufacturing Purchasing Managers' Index (PMI) in May 2025 touched a five-month low of 49.6. The contraction in manufacturing activity was led by the emerging markets, with the developed markets holding up better.
Ind-Ra therefore expects the merchandise exports to decrease to around USD 113 billion in 1Q-2025-26.
The merchandise imports, however, are expected to increase to around USD189 billion in 1Q-2025-26, due to pre-emptive buying in view of the tariff pause and geopolitical tensions.
Overall, India Ratings expects the goods trade deficit to rise 22.4 per cent year-on-year to around USD 76 billion in 1Q-2025-26.
All in all, Ind-Ra expects CAB to turn into a deficit of around 1.2 per cent of GDP in 1Q-2025-26, said Paras Jasrai, Economist and Associate Director, Ind-Ra.
The escalation of the Israel-Iran conflict extends the clouds of uncertainty prevalent in the global economic environment.
"Iran's threat of closure of Strait of Hormuz which is responsible for shipping over 20 per cent of world's oil supply can spring up oil prices significantly. If such a situation were to materialise, then this could take India's current account deficit to beyond 1.5 per cent of GDP in the later part of FY26," said India Ratings.
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