Capital Outflow, Tariffs May Hit CAD in Q4 and Beyond

Widening current account deficit can put pressure on the rupee and inflate costs for business

- Rhik Kundu

India's current account deficit (CAD) is likely to widen in the fourth quarter of FY25, experts warned, citing factors such as looming Trump tariffs that would hit Indian exports and also drive Chinese shipments to India, and falling short-term foreign capital outflows.

Lower remittances from overseas Indians—the fallout from a shrinking global economy and US President Donald Trump's proposed tax on such transfers—could also help widen the deficit, they said ahead of the June-end publication of Q4 data.

The widening could continue into subsequent quarters unless there's a change in macroeconomic fundamentals, they warned. Increased tariffs, announced by US President Donald Trump, could spur China to divert goods to other countries, experts fear.

The CAD—when the value of a country's imports exceeds what it earns from exports—rose marginally to $11.5 billion, or 1.1% of GDP in the October-December quarter of FY25 from $10.4 billion, or 1.1% of GDP, a year earlier, despite strong growth in service exports.