India's current account deficit (CAD) is expected to remain within a manageable range of 1.2-1.5% of GDP, according to recent reports. However, the trajectory of ongoing trade negotiations between India and the United States will be crucial in determining the final figure.
Current Account Deficit Trends
In the first quarter of the financial year 2026, India's CAD narrowed significantly to $2.4 billion, or 0.2% of GDP, a substantial decrease from $8.6 billion, or 0.9% of GDP, in the corresponding period of the previous year. This improvement was primarily driven by strong growth in services exports, which rose to $47.9 billion, and increased remittances. In contrast, the merchandise trade gap widened to $68.5 billion during the same period. For the second quarter of 2025, India recorded a current account deficit of $2.351 billion. Trading Economics projects the CAD to be around -1.00 percent of GDP by the end of 2025.
India-US Trade Talks
India and the United States are actively engaged in discussions to finalize a long-pending trade agreement. Both sides have expressed optimism about reaching a mutually beneficial resolution, with engagement ongoing at a deeper level. A delegation from India recently visited Washington to advance negotiations, aiming for an agreement by October-November. The US Ambassador-designate also visited New Delhi to foster consensus on outstanding issues.
Key Issues and Opportunities
Several key issues are under discussion, including tariff and non-tariff matters. Around 45% of India's exports to the United States remain outside tariff coverage. While most trade-related disagreements have reportedly been resolved, India's continued purchases of Russian oil remain a point of contention. India is working on a mutually acceptable plan to address this concern without compromising its energy security.
Alongside resolving market access issues, India is exploring opportunities to scale up imports of liquefied natural gas (LNG) and renewable energy technologies from the US. Both nations see energy cooperation as a strategic priority, aligning with India's clean energy transition goals and helping diversify its energy sources.
Economic Implications
The successful conclusion of a trade agreement with the United States could significantly boost bilateral trade, potentially doubling it to $500 billion by 2030. In 2023, Bilateral trade between India and the US reached a record USD 191 billion, making the US India's largest trading partner.
The renewed trade momentum comes as both nations seek to strengthen their economic partnership amid global geopolitical shifts. "Positive progress" has been made in discussions on a proposed Bilateral Trade Agreement, with officials from both sides focused on paving the way for the first phase of the agreement, which both sides hope to conclude soon.
Risks and Considerations
Despite the progress in trade talks, some challenges remain. The United States has imposed retaliatory tariffs of 25% on Indian goods, along with an additional 25% penalty, in response to India's ongoing crude oil purchases from Russia. The total tariff on Indian exports now stands at 50%. These tariffs could impact India's export competitiveness and potentially widen the current account deficit.
Conclusion
While India's current account deficit appears to be in check, its future trajectory will depend significantly on the outcome of trade negotiations with the United States. A mutually beneficial agreement could boost trade, attract investment, and support India's economic growth. Conversely, failure to resolve trade tensions could lead to increased protectionism and negatively impact India's external balances.
