India's Current Account Advantage

The current account deficit poses little concern amid global volatility, but its financing requires close monitoring

- DHARMAKIRTI JOSHI & ADHISH VERMA

Last financial year, India's current account deficit (CAD) printed at a non-worrisome 0.6 per cent of gross domestic product (GDP), driven by healthy net invisible receipts. It was a whit lower than 0.7 per cent in 2023-24, despite the goods trade deficit rising to 7.3 per cent of GDP from 6.7 per cent.

This happened because both the services trade and secondary income accounts saw a higher surplus, which more than offset the deterioration in the goods trade deficit. Such low reliance on external financing of CAD is a buffer against volatility in capital flows and the attendant currency swings—facets that have become the norm rather than the exception today because of macroeconomic and geopolitical flux.

Elevated uncertainties around trade have cast a long shadow over economic activity. S&P Global expects world GDP growth to slow to 2.9 per cent in 2025, from 3.3 per cent in 2024, as the two largest economies, the United States and China, plod on. This will adversely impact India's exports, while healthy domestic growth, which we expect at 6.5 per cent, should support imports.

Will that be worrisome for India's current account? Not so much—yet.

This financial year, we expect CAD to remain in the safe zone at about 1.3 per cent of GDP. The current account comprises not only the goods trade but also the services trade, and incomes under the primary and secondary accounts (largely personal transfers, including remittances).