India's Trade Challenges: Navigating a Widening Current Account Deficit

India is expected to face heightened current account deficits through FY26 due to global trade shifts. Reports suggest a persistent trade imbalance influenced by Trump's policies and sluggish exports. Fiscal measures and stable bond yields offer a silver lining amidst these economic challenges.

India's current account deficit is anticipated to remain high through the fiscal year 2026, a result of global trade policy shifts, as per a recent JM Financial report. The report underscores that India's imports have consistently surpassed exports, thereby expanding the trade deficit.

The analysis indicates that global supply chains, adjusted by Donald Trump's trade policies, will primarily impact Indian exports over imports. In November 2024 alone, the trade deficit surged to USD 37 billion, far exceeding the monthly average of USD 23.5 billion recorded earlier in the fiscal year.

This ongoing deficit is likely to strain the Indian rupee, potentially causing depreciation. Nevertheless, fiscal consolidation efforts are expected to control bond yields. Despite an expected capex reduction in FY25, particularly during the election period, fiscal discipline brings stability, with bond yields anticipated to hover around 6.5% in 2025.

(With inputs from agencies.)