India's Trade Surplus Alters FY25 Deficit Forecast

India's current account deficit (CAD) outlook for FY25 shows improvement after February's trade data revealed a rare surplus. Trade balance flipped to a $4.43 billion surplus. However, uncertainties in export dynamics and US tariff threats mean the FY26 CAD projection remains at 1.2%.

India's current account deficit (CAD) for FY25 faces a notable revision, following a surprising trade surplus in February's data, according to the Union Bank of India (UBI). The report indicates a surplus of USD 14.05 billion, raising prospects for the GDP forecast.

The trade surplus challenges the anticipated 1.2% CAD forecast, but lingering uncertainties in export and commodity pricing compel projections for FY26 to remain unchanged. UBI cited potential US retaliatory tariffs from April as a significant factor.

Contributing factors include a drop in global oil prices and reduced non-oil and gold imports. February saw a 10.9% decline in exports, while imports fell even further by 16.3%, leading to a favorable trade balance.

The decline in oil imports directly correlates with reduced global Brent crude prices, coupled with moderated gold import volumes, which held at 25.1 tons in February versus 30.8 tons in January.

Services trade remains strong, recording a surplus of USD 18.48 billion in February. The robust services sector acts as a counterbalance to goods trade fluctuations amid signs of a slowing global economy.

The country transitioned from a USD 18.05 billion deficit in January to a USD 4.43 billion trade surplus in February when including services, as the gold deficit narrowed post-high demand during the festive season.

India maintains resilience amid global economic challenges and continues to experience stable demand for its exports, supported by sound trade policies and ongoing strength in goods and services markets, despite geopolitical and tariff-related concerns.

(With inputs from agencies.)