India’s trade momentum remains considerably strong even as global markets grapple with geopolitical shocks, inflationary pressures and tightening financial conditions. According to SBI Research’s latest macroeconomic review released on Saturday (Nov 22), the country’s current account deficit (CAD) is expected to widen temporarily in the middle quarters of FY26 before narrowing again towards the closing months of the fiscal year.
The report projects that the CAD will likely stand at 1.8 percent of GDP in Q2 and widen to 2.8 percent of GDP in Q3, reflecting higher import demand and seasonal trade patterns. However, the deficit is projected to improve sharply in Q4 FY26, enabling the full-year CAD to settle between 1-1.3 percent of GDP, a range economists consider entirely manageable for a rapidly expanding economy like India.
While the balance of payments (BOP) is expected to record a marginal deficit of up to USD 10 billion this fiscal, SBI Research emphasised that concerns over its impact on the rupee may be overstated.
“Even though the balance of payments will turn negative in FY26, the alarm bells being sounded regarding its impact on rupee movements appear a little overblown at this point,” the report said, underscoring that the fundamentals of India’s external sector remain strong.
The analysis notes that India’s foreign exchange reserves continue to provide a significant buffer, and the narrowing CAD in the final quarter of FY26 should help stabilise external balances.
India’s merchandise exports grew 2.9 percent year-on-year to USD 220 billion during April-September of FY26, despite persistent weakness in global trade volumes. The numbers highlight the resilience of Indian exporters who have sustained momentum in the face of supply chain disruptions and a contraction in demand across Europe and parts of East Asia.
Shipments to the United States jumped 13 percent to USD 45 billion during the period, a notable achievement given front-loading effects earlier in the year and a slight decline in the US share of India’s exports since July 2025.
The report identifies marine products and readymade garments (cotton RMG) as standout performers, registering healthy growth in the first half of the fiscal year.
SBI Research further observes that India’s export basket is becoming more diversified, with significant increases in shipments to: UAE, China, Vietnam, Japan, Hong Kong, Bangladesh, Sri Lanka and Nigeria.
This diversification is viewed as strategically important, reducing India’s dependence on a narrow set of markets and strengthening resilience against regional economic shocks.
The report highlights recent government initiatives aimed at equipping exporters to compete more aggressively in global markets. A major intervention this year is the Centre’s approval of Rs 45,060 crore in support, including Rs 20,000 crore in credit guarantees on bank loans for exporters.
According to SBI Research, this measure will help:
1. Ease liquidity constraints for exporting firms
2. Support entry into new and emerging markets
3. Strengthen global competitiveness
4. Encourage expansion into high-value supply chains
Such sustained policy support is expected to be a key driver in maintaining export momentum through the remainder of FY26, particularly as global trade remains subdued.
The report also addresses recent volatility in the Indian rupee, which slipped past 89.49 against the US dollar amid heightened global uncertainty. SBI Research clarifies that the depreciation reflects a stronger dollar index and turbulence in global financial markets, rather than any structural weakness in India’s macroeconomic position.
India’s robust export performance, moderate CAD, stable capital inflows, and healthy forex reserves underpin the currency’s long-term stability, the report adds.
As FY26 progresses, economists believe India’s external sector is well-positioned to weather global shocks. Strong export performance and a contained CAD are expected to maintain investor confidence and support macroeconomic stability.
The projected 1-1.3 percent CAD for the full year remains far below levels seen in earlier decades when high deficits often pressured the rupee and triggered policy interventions. Today’s scenario is markedly different: India has deeper export capabilities, diversified markets, stronger reserves, and more resilient supply chains.
SBI Research concludes that despite a temporary widening of the current account in the middle of the fiscal, the country’s trade fundamentals remain robust, and India is firmly placed to navigate global headwinds while sustaining growth.
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