Despite growing geopolitical uncertainty, India’s external sector has held steady as service exports have risen, according to the Economic Survey released on January 31.
India’s current account deficit narrowed to $11.2 billion or 1.2 percent of the GDP in the second quarter of FY25 compared with 1.3 percent in the previous quarter.
The country is likely to end the year with a current account deficit in the 1.1 percent range.
"Global trade dynamics have changed significantly in recent years, shifting from globalisation to rising trade protectionism, accompanied by increased uncertainty. This calls for a new strategic trade roadmap for India," the Economic Survey noted.
Experts indicate that pressure on rupee is expected to keep CAD higher in the coming year as well.
The country’s current account deficit had declined to 0.7 percent in 2023-24 compared with over 2 percent in the previous fiscal.
India expects its trade to rise further in the coming fiscal. Union Commerce Minister Piyush Goyal in December noted that trade is likely to cross $800 million mark this fiscal, with eye on $1 trillion target for FY26.
The new trade policy in 2021 had fixed $1 trillion export target for FY26.
The threat of tariffs is expected to weigh heavy on global trade as the US readies a flurry of levies on economies. US President Donald Trump, on his campaign trail, had threatened levies against India as well.
A Moneycontrol analysis found that India levied higher duties on the US than economies like China, Vietnam and Indonesia. Similarly, Indian products also face higher duties from the US than these countries.
Analysis shows that India may face the ire of the new President as the average tariff gap is 11.9 percent across over 3,000 products traded between the countries.
The tariff gap is the difference between tariffs imposed by India on US imports and those imposed by the United States on Indian exports to the country. Around 10 percent of India's exports to the US attract over 10 percent tariff.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
