ICICI Bank Projects India’s FY25 Current Account Deficit at 1.1% of GDP

ICICI Bank has projected India’s Current Account Deficit (CAD) to remain at 1.1% of GDP for the fiscal year 2024-25 (FY25). The bank’s report highlights key shifts in India’s external economic position, influenced by a widening trade deficit and outflows of foreign portfolio investments (FPI).

On December 30, 2024, ICICI Bank share price traded up 0.95%, reaching an intra-low high of ₹3,021 at 9:32 AM (IST). According to BSE data, the stock recorded a total traded volume of 4776 shares, resulting in a turnover of ₹1.44 lakh.

Trade Deficit Hits Record High in November 2024

India’s trade deficit surged to a record $37.8 billion in November 2024, driven by a sharp increase in gold imports, which totalled $14.9 billion for the month. Non-oil and non-gold imports also witnessed a 3.5% year-on-year (YoY) growth during October-November 2024, further straining the trade balance.

On the export front, oil exports dropped by 36% during the same period, reflecting weaker global demand. However, non-oil exports provided a silver lining, with electronics and engineering goods exports showing robust growth of 50% and 27% YoY, respectively, during October-November 2024.

Challenges in Managing the Trade Deficit

The report underscores the difficulty of managing the trade deficit amid a weaker global growth outlook, which is being impacted by rising interest rates globally. The U.S. Federal Reserve’s hawkish stance has added to concerns about the global economic slowdown, posing challenges for India’s external trade.

Despite government efforts to curb gold imports, the report cautions that the trade deficit may remain under pressure due to these macroeconomic headwinds.

Capital Flows and BoP Concerns

Foreign Direct Investment (FDI) inflows into India have remained steady, reflecting investor confidence in the country’s economic fundamentals. However, the gains have been offset by significant outflows, driven by profit-taking in India’s primary equity markets.

As a result, the Balance of Payments (BoP) scenario has experienced a dramatic shift. The first half of FY25 recorded a surplus of $23.8 billion, but the second half is witnessing a sharp decline. The report warns that the BoP surplus for FY25 could turn neutral or even negative if FPI outflows surpass expectations.

Services Exports and Remittances Provide Relief

India’s services exports and remittance inflows have been bright spots, helping to offset the adverse impact of rising gold imports and declining oil exports. These factors have played a crucial role in keeping the CAD manageable despite mounting challenges in trade and capital flows.

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