ICICI Bank forecasts 1.1% current account deficit for India in FY25 amid trade challenges

ICICI Bank has forecasted that its expects India's Current Account Deficit (CAD) to remain at 1.1 per cent of the GDP in FY25 (FY25). In its recent repost, the bank highlighted significant changes in the country's external position in recent months, driven by a widening trade deficit and foreign portfolio investment (FPI) outflows, ANI reported.

According to ICICI Bank, “We expect CAD at 1.1 per cent of GDP in FY25.”

Factors In Focus

In November 2024, India's trade deficit reached a record high of $37.8 billion, primarily due to gold imports totaling $14.9 billion. Further, non-oil and non-gold imports have been on the rise, increasing by 3.5 per cent year-on-year (YoY) during October-November 2024.

On the export side, while oil exports have declined by 36 per cent during the same period, non-oil exports have shown a positive trend. Electronics and engineering goods exports grew by 50 per cent and 27 per cent YoY, respectively, in October-November 2024.

The report also cautioned that despite government efforts to manage gold imports, the trade deficit is likely to remain under pressure due to a weaker global growth outlook. This is attributed to rising interest rates worldwide, with the United States Federal Reserve (Fed) signaling a higher trajectory for rates.

Global Growth Outlook Impact

The report "Even as the government is working on reconciling gold imports, the trade deficit outlook is worse because of lower global growth outlook".

It stated that Foreign Direct Investment (FDI) inflows have remained robust; however, higher outflows driven by exits in India's thriving primary equity market have offset the gains.

As a result, the Balance of Payments (BoP) scenario has shifted significantly. While the first half of FY25 saw a surplus of USD 23.8 billion, the second half is witnessing a steep decline. The overall BoP surplus is expected to remain neutral for FY25, with a risk of turning negative if FPI outflows exceed estimates.

On a positive note, India's services exports and remittances have seen strong growth, helping to offset the impact of higher gold imports and weaker oil exports. This has ensured that the CAD remains manageable despite mounting challenges in the trade and capital flows landscape.

(With inputs from ANI)