ICICI Bank Projects CAD To Be 1.1% Of GDP In FY25

The current account deficit will stay at 1.1 per cent of GDP in the ongoing financial year of 2025. Despite the challenges posed by continuous foreign outflows and widening trade deficit, increased oil imports and a dip in oil exports.

In its latest report, ICICI Bank highlighted that India’s trade deficit reached a record high of $37.8 billion in November 2024, largely due to a surge in gold imports, which amounted to $14.9 billion. Additionally, non-oil and non-gold imports have also risen by 3.5 per cent year-on-year during October-November 2024.

On the export front, while oil exports have seen a sharp decline of 36 per cent in the same period, India's non-oil exports, particularly electronics and engineering goods, have performed well. Electronics exports surged by 50 per cent, and engineering goods saw a 27 per cent growth compared to the previous year.

Despite government measures to curb gold imports, ICICI Bank cautioned that the trade deficit will likely remain under pressure, partly due to weaker global growth projections. The U.S. Federal Reserve's stance on maintaining high interest rates further contributes to this outlook, potentially dampening demand in major markets.

The report also pointed to the impact of global economic conditions on India’s external position. While Foreign Direct Investment (FDI) inflows have remained strong, they have been offset by substantial outflows, particularly due to exits from India's primary equity market.

The Balance of Payments (BoP) situation has shifted, with the first half of FY25 recording a surplus of $23.8 billion. However, the second half has sharply declined, leaving the overall BoP surplus for the fiscal year expected to be neutral. There is even a risk of a negative BoP if FPI outflows surpass expectations.

On a more positive note, India’s services exports and remittances have shown robust growth, helping mitigate the impact of higher gold imports and weaker oil exports. These sectors have been key in keeping the CAD manageable despite the pressures in trade and capital flows.

ICICI Bank’s forecast highlights the challenges India faces in balancing its external account amid a shifting global economic landscape and domestic efforts to address its trade and capital account imbalances.