According to a report by ICICI Bank, India’s Current Account Deficit (CAD) is likely to be around 1.1% of its economy, or Gross Domestic Product (GDP), in the financial year 2024-25 (FY25). The report says that recent changes in India’s trade situation have led to this outlook, mainly due to a growing trade deficit and some money leaving the country from foreign investors.
In November 2024, India faced a record trade deficit of USD 37.8 billion, with gold imports accounting for USD 14.9 billion. This means India is buying much more from other countries than it is selling. To make things worse, imports (goods bought from other countries) excluding oil and gold have also risen, up 3.5% compared to last year.
On the brighter side, while oil exports dropped by 36%, non-oil exports have been increasing. Notably, exports of electronics grew by 50%, and engineering goods by 27% during the same period.
The report warns that despite the government’s efforts to control gold imports, the trade deficit might still face challenges due to slow economic growth in the world. This slow growth is connected to higher interest rates in many countries, especially the U.S.
Despite seeing strong Foreign Direct Investment (FDI) coming into India, money leaving through investments in stocks has offset some of these gains. Therefore, the overall financial situation is changing. The first half of FY25 recorded a surplus of USD 23.8 billion, but the second half might see a decline, leading to a neutral outlook for the Balance of Payments (BoP) for FY25.
Still, there is some good news! India’s services exports and money sent back by people working abroad (remittances) are growing strongly and helping balance out the effects of high gold imports and lower oil exports.
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