India's Current Account Risk to Moderate Amid US-India Trade Deal

India's current account risk is set to moderate amid easing import shocks and a near-final US-India trade deal, says a Union Bank report. The C/A deficit for FY26 is now projected at ~1% of GDP, a sharp improvement from earlier estimates.

Driven by commodity price volatility amid the persistence of the US-India trade deal stalemate, the risk to current account (C/A) dynamics is likely to moderate, as one-off import shocks ease. According to a Union Bank of India report, with the India-US bilateral trade agreement nearing finalization, potentially by late December of this year, exports could gain by cutting tariffs from 50 per cent to 15-16 per cent. However, the near-term impact may be limited. The deal is expected to strengthen India's export base over time, partially offsetting pressures on the trade balance in the quarters ahead.

Improved Current Account Outlook

As India's external sector shows clear signs of improvement after a volatile start to the second half of the year, the C/A deficit tracking for FY26 is seen at approximately 1 per cent of GDP amid a sharp recovery in trade dynamics. This marks a downward shift from an earlier estimate of 1.7 per cent of GDP made after the October trade shock.

Trade Deficit Narrows Sharply in November

The data showed that the merchandise trade deficit fell sharply to USD 24.53 billion in November 2025 from a record high of USD 41.68 billion in October. This improvement exceeds market expectations and signals a turning point in trade conditions. Exports rose during the month, while imports normalized after seasonal and one-off spikes seen earlier. As a result, pressure on the overall current account eases.

Services Surplus Acts as a Buffer

The Services trade surplus increased to USD 17.90 billion in November, up from USD 17.44 billion in October. Although October data is revised downward, the surplus stayed broadly stable and continues to act as a buffer against fluctuations in goods trade.

Combined goods and services data showed the total trade deficit falling to USD 6.63 billion in November from USD 24.24 billion in the previous month, bringing it back to single-digit levels.

Key Import Deficits Decline

The oil trade deficit narrowed slightly to USD 10.18 billion in November despite higher crude imports. The report highlighted that a USD 10-per-barrel change in oil prices affected the annual current account balance by nearly USD 15 billion. With oil prices remaining subdued, the overall impact on the current account stays supportive.

The gold deficit fell to USD 4.30 billion in November from a record USD 16.20 billion in October, even as global gold prices remain near record highs. Domestic demand cooled after festive buying, leading to lower import volumes.

Non-oil, non-gold (NONG) imports also normalized, with the deficit narrowing to USD 10.05 billion from USD 14.64 billion a month earlier. The improvement came mainly from machinery, electronics and chemicals, which saw a correction after festive demand spikes.

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