India's Trade Dynamics: CAD to Hold Steady at 1.1% in FY25

India's Current Account Deficit is projected at 1.1% of GDP for FY25. Despite record trade deficits, driven by significant gold imports, robust services exports, and remittances offset challenges. FDI remains strong, though rising global interest rates pose a risk to trade balance and capital flows.

A recent report from ICICI Bank projects India's Current Account Deficit (CAD) to steady at 1.1% of its GDP in FY 2024-25, reflecting turbulent shifts in its external financial position. Key factors include an enlarged trade deficit and foreign portfolio investment outflows.

In November 2024, India's trade deficit marked a historic high of USD 37.8 billion, predominantly propelled by gold imports amounting to USD 14.9 billion. Non-oil and non-gold imports saw an uptick of 3.5% year-on-year during October-November 2024. Conversely, export analysis reveals a mixed bag; oil exports have dropped by 36% in the same timeframe, whereas exports of electronics and engineering goods surged by 50% and 27%, respectively.

Global economic conditions and heightened U.S. interest rates present challenges for India's trade outlook. While FDI remains robust, primary equity market exits are counterbalancing gains, altering the Balance of Payments (BoP). Nevertheless, burgeoning services exports and remittances are pivotal in maintaining CAD's equilibrium amid these conditions. (ANI)

(With inputs from agencies.)