India’s Current Account Remains Manageable Despite Export Challenges
India’s external sector is sending mixed signals as merchandise exports slow amid tariff-related disruptions, while services exports continue to provide crucial support to the country’s current account, according to a report by CareEdge.
“Looking ahead, as merchandise exports navigate a challenging environment, we expect services trade surpluses and remittances to continue providing support. Coupled with benign global crude oil prices, this is likely to keep India’s current account deficit broadly manageable at around 1% of GDP in FY26,” the report noted.
Tariff Hurdles Hit Merchandise Exports
The export environment, which had benefitted from front-loading in the initial months of FY26, has softened since September. Non-petroleum exports contracted 3.9% during September-October 2025, reversing the 7.3% growth recorded from April to August.
The slowdown follows the imposition of 50% reciprocal tariffs by the United States from late August, hitting key export categories, particularly labour-intensive sectors. Gems and jewellery shipments fell 15.6% over the last two months, while textile exports (excluding readymade garments) declined 9.5%. Readymade garments also remained weak.
While exports to the US declined sharply, shipments to the UAE, Hong Kong, and China partially cushioned the impact. Electronic goods and petroleum products, benefiting from US tariff exemptions, were the only major categories to remain resilient.
Import Growth And Services Sector Cushion
On the import front, India recorded a 6.8% rise during April-October FY26, supported by strong domestic demand and higher imports of precious metals. Gold and silver imports surged 30.5%, their highest level in recent years. Combined with strong core imports, the merchandise trade deficit widened to USD 199 billion, its largest in several years.
Despite this pressure on goods trade, services exports have been a key stabilising factor. They grew 8.2% in the first seven months of FY26, driven by software services (12.5%) and other business services (22.4%). CareEdge noted that services exports, being largely outside the reach of tariff disruptions, have helped maintain India’s overall external balance.
However, the report highlighted potential challenges ahead, including the impact of higher H-1B visa fees and the proposed HIRE Act in the US, which could limit outsourcing and affect services exports.
Outlook For FY26
India’s external position showed some strain in Q2 FY26, with the current account deficit widening to USD 12.3 billion (1.3% of GDP) from USD 2.7 billion (0.3% of GDP) in the previous quarter. This reflects the weakness in merchandise trade, though remittances and resilient services exports limited the imbalance.
Looking forward, CareEdge expects merchandise exports to contract around 1% in FY26, imports to rise 5% due to robust domestic demand, and services exports to grow 8.5%, continuing to stabilise the current account.
(Syndicated From ANI)
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