News

India’s external accounts are likely to stay on an even keel next year, with the current account deficit expected to remain close to 1 per cent of GDP in FY26, according to a recent research note by Union Bank of India. Despite sharp month-to-month swings in trade data, the bank believes underlying trends are turning more supportive, helped by softer commodity prices, steady services exports and improving trade conditions.

While recent trade numbers have been volatile, the report underlines that the broader picture remains stable. Falling crude prices, easing gold imports and consistent earnings from services are expected to absorb much of the pressure on the external balance in the months ahead.

Crude oil prices are expected to provide meaningful relief going forward. The bank believes oil prices are likely to stay under pressure until December 2025, as global supplies remain ample, stockpiles build up and demand growth stays muted. For an economy like India’s, which depends heavily on imported crude, even modest price shifts can make a big difference.

The report also points to a likely slowdown in gold imports after a sharp jump in October. While prices remain near record highs, both volumes and values of imports are expected to moderate in December. Wedding-related demand and investment buying continue, but the pace has eased in recent weeks.

Services exports remain the strongest cushion for India’s external balance. Earnings from IT services, business process outsourcing and other knowledge-driven exports have stayed resilient, offsetting a significant portion of the goods trade gap.

According to the report, this steady inflow has been crucial in stabilising the current account, particularly after the disruption seen in October’s trade data. A sharper-than-expected improvement in November, combined with firm services receipts, has prompted the bank to take a more optimistic view on the CAD outlook.

After briefly raising its CAD estimate to 1.7 per cent of GDP following weak October data, Union Bank now expects a faster recovery in trade conditions. The latest assessment places the current account deficit at around 1 per cent of GDP in FY26 - a level seen as comfortable and manageable for the economy.

The report flags the potential benefits of a proposed India–US bilateral trade agreement, which could be concluded by late December 2025. While a reduction in tariffs from roughly 50 per cent to the 15–16 per cent range - may not deliver immediate gains, it could strengthen India’s export competitiveness over time.

Such structural support would help cushion future shocks to the trade balance and add durability to the external sector in the years ahead.

Overall, the report concludes that India’s external position remains broadly stable. Softer commodity prices, cooling gold imports, robust services exports and improving trade dynamics are expected to keep the current account deficit within a comfortable range through FY26, even as global headwinds linger.