India’s merchandise trade deficit narrowed to a 42-month low of USD 14.1 bn in Feb-25 from USD 23.0 bn in Jan-25
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Overall a lower merchandise deficit was driven predominantly by lower deficit related to petroleum products, gems & jewellery, electronics, and ores & minerals. With data revisions now appearing to have normalized, we adjust our FY25 forecast for current account deficit to 0.7% of GDP (USD 27 bn) from 1.3% (USD 44 bn) with downside earlier. For FY26, global geopolitics and geoeconomics have taken centerstage. The specter of ‘reciprocal tariffs’ has put India under the spotlight for now. We hope that India will be able to negotiate by lowering exceptionally high tariff lines for select items, granting market access to select US manufacturers, and increasing energy procurement from the US. Taking into consideration the heightened near-term uncertainty on the prospects of India-US trade, we retain our FY26 current account deficit at 1.3% of GDP (USD 52 bn) for now. We would evaluate the impact of likely policy changes over the course of the next 1-2 months before calibrating our forecast.