India’s current account deficit (CAD) may surpass 1.0 per cent of GDP in FY2026, if the 50 per cent US tariff rate prevails till end-March 2026, which would lead to a year-on-year (y-o-y) contraction in exports, according to ICRA.
India’s CAD was at 0.6 per cent of GDP in FY25, marginally lower than 0.7 per cent of GDP in FY24, primarily due to higher net invisibles receipts.
The rating agency has projected India’s CAD to enlarge considerably to $13-15 billion (-1.5 per cent of GDP) in Q2 FY2026 vis-à-vis Q1 FY26 (-0.2 per cent of GDP), led by a significant widening in the merchandise trade deficit.
In this backdrop, the agency expects the USD/INR pair to trade between 87.0 and 89.0 in the near term, while remaining susceptible to event risks, particularly tariff-related developments.
ICRA said the current account reverted to a deficit of $2.4 billion in Q1 FY26 (-0.2 per cent of GDP) vis-a-vis surplus of $13.5 billion in Q4 FY25 (+1.3 per cent of GDP), but sharply lower than the deficit of $8.6 billion (-0.9 per cent of GDP) seen in Q1 FY25.
The CAD in Q1FY26 also considerably trailed ICRA’s forecast of 0.7 per cent of GDP, primarily driven by larger-than-anticipated remittances.
The current account slipped into deficit in Q1FY26 owing to the seasonal widening in the merchandise trade deficit (MTD) as well as lower services trade surplus between these quarters.
The agency noted that the Rupee has depreciated by 3.2 per cent against the dollar in CY25 so far (up to September 1), making it one of the worst performing Emerging Market currencies against the dollar during this period.
