India's CAD to Stay Under Control Amid Tariff Turbulence

India's current account deficit is projected to remain manageable at 1% of GDP amid global challenges. Crisil highlights strong services trade, remittances, and lower oil prices as key stabilizers. Despite US tariff increases, export growth and a narrowing trade deficit offer encouraging signs for the Indian economy.

India is expected to keep its current account deficit (CAD) in check at around 1% of GDP this financial year, according to a report by rating agency Crisil. This is despite the economy grappling with increased tariffs and geopolitical pressures.

The report cites a robust services trade, consistent remittances from overseas Indians, and reduced crude oil prices as factors supporting a stable CAD. However, Indian exports face hurdles due to heightened tariffs from the US, particularly affecting goods linked to Russian oil purchases.

Tariffs on Indian exports to the US have doubled to 50%, complicating trade dynamics. Nonetheless, India is pursuing new trade agreements to mitigate these impacts. August saw merchandise exports climb by 6.7% year-on-year, driven by oil, gems, and core exports, while imports fell sharply, reducing the trade deficit significantly. This trend, alongside rising exports to non-US markets and contracting imports in gems and jewellery, is aiding in managing the CAD effectively this fiscal year.