As India’s merchandise trade deficit expanded by nearly 11 per cent year-on-year (YoY) to USD 62.3 billion in the first quarter of Financial Year 2025 (FY25), the country’s current account deficit (CAD) is expected to widen to 1.4 per cent of the gross domestic product (GDP) in Q1FY25 from 1 per cent in Q1FY24, according to a report by Icra.
The rating agency also expects the CAD to rise to one per cent of GDP in FY25 from 0.7 per cent in FY24.
In its report, Icra stated that the country’s merchandise imports outperformed the exports in Q1FY25. India’s merchandise exports rose by 5.8 per cent to USD 110 billion in the first quarter of FY25 from USD 103.9 billion in Q1FY24. This growth was led by an increase in both oil and non-oil segments as they registered a YoY growth of 9.3 per cent and 5.1 per cent, respectively. The uptick in non-oil exports was primarily driven by higher shipments of electronic goods and engineering goods, textiles.
On the other hand, merchandise imports increased by 7.6 per cent to USD 172.2 billion in Q1FY25 from USD 160 billion in Q1FY24. This was led by an increase in oil and non-oil non-gold (NONG) imports as they witnessed a YoY growth of 23.1 per cent and 2.5 per cent, respectively.
As a result, the merchandise trade deficit widened to USD 62.3 billion in Q1FY25 from USD 56.2 billion in Q1FY24, which pushed the CAD to 1.4 per cent of GDP in this quarter, a turnaround from a transient surplus of 0.6 per cent of GDP in Q4FY24, the report mentioned.
Given the favourable outlook for domestic demand and investment, the country’s merchandise imports are set to grow by seven to nine per cent in FY25. The exports in this segment are likely to grow by four to six per cent in FY25. The goods’ trade deficit is expected to widen to USD 272 to 275 billion from USD 242 billion in FY24.
Aided by continued traction in non-IT services, the services trade surplus is likely to grow by eight to nine per cent in FY25, taking the numbers to USD 176-178 billion. However, as per Icra, the current account deficit is likely to remain manageable and comfortably financed, following the inclusion of Indian G-secs in JP Morgan’s Index.
