India’s current account deficit (CAD) widened to $13.2 billion in Q3 FY2026 from $11.3 billion in the year ago quarter, while printing well below ICRA’s forecast of ~$20 billion. The undershooting was largely led by lower-than-expected merchandise trade deficit (MTD) as well as primary income outflows. Looking ahead, the CAD is forecasted to widen to ~1% of GDP in FY2027 from the expected 0.7-0.8% of GDP for FY2026. Nevertheless, our preliminary estimates are subject to undergo a revision once there is greater clarity around developments on the trade deal with the US. Besides, the ongoing war in West Asia is likely to exert an upward pressure on the shipping costs and global oil prices, and consequently the MTD in the near term. ICRA’s analysis suggests that a $10 increase in average crude oil price in a year would push up CAD in the range of 30-40 bps vis-à-vis the baseline estimate. Consequently, ICRA foresees upside risk to its FY2027 CAD projection of ~1% of GDP.

EXHIBIT: Current Account Balance – $ billion and % of GDP

“-” denotes outflows and vice versa; Source: RBI; CEIC; ICRA Research