CAD outlook: Report predicts deficit to nearly double in FY26; projected at 1.2% of GDP

India’s current account deficit (CAD) could almost double in the ongoing financial year to 1.2 per cent of gross domestic product (GDP), compared with 0.6 per cent in FY25, amid rising trade and geopolitical tensions, according to a report by Union Bank of India.As per news agency ANI, the report pointed out that India’s merchandise trade deficit widened sharply to $27.35 billion in July 2025 from $18.7 billion in June, signalling that the CAD may expand further in the second quarter of FY26. “CAD may almost double to 1.2 per cent of GDP amid trade & geopolitical tensions,” it stated.A key concern is the recent US tariff hike, with duties raised by 50 per cent from August 27. According to the report, this move is expected to disrupt exports in key sectors such as textiles, gems and jewellery, auto components, chemicals, and shrimps. It noted that the full impact of these disruptions would need close monitoring in the coming months.The report highlighted that India’s current account balance remains highly sensitive to oil prices, with every $10 per barrel movement in crude impacting the annual CAD by nearly $15 billion. It also underlined the role of global commodity prices, particularly oil and metals, in shaping India’s external position.Geopolitical risks and tariff concerns are expected to continue weighing on trade, though any trade agreements signed with the US or Europe could help ease the pressure. The report added that lower oil prices, if sustained, could provide significant support to CAD dynamics.At the same time, services exports and remittances have so far remained resilient. As per ANI, services exports rose to $97.4 billion in the first quarter of FY26, up from $88.5 billion a year ago, while remittances increased to $33.2 billion from $28.6 billion.The Crisil report cited by ANI also noted that India’s CAD had narrowed sharply in Q1FY26 to $2.4 billion, or 0.2 per cent of GDP, compared with $8.6 billion, or 0.9 per cent of GDP, in the same period last year, aided by strong service inflows. Financial flows were net positive at $13.2 billion, supporting foreign exchange reserves, though inflows were lower than the year-ago period.The Union Bank of India report cautioned that while services exports and remittances could deliver positive surprises, persistent trade tensions pose a downside risk to growth.