Chief Economic Adviser V Anantha Nageswaran warns that India’s Current Account Deficit (CAD) could double to 2% of GDP in FY27 due to the escalating West Asia conflict.
India Braces for Twin Deficits: West Asia Crisis Set to Push CAD to 2% and Breach Fiscal Targets
India’s current account deficit (CAD) could more than double to 2% or higher of GDP in FY27 from below 1% in FY26, while the fiscal deficit target of 4.3% will come under pressure due to the continuing West Asia conflict, chief economic adviser V Anantha Nageswaran said on Saturday.
Speaking at a conference in Delhi, he said the conflict, whether on a “low simmer or high flame”, would continue to affect the global economy through multiple channels, including higher commodity prices, weaker trade growth, sticky logistics costs and lower remittances. Insurance and freight costs, once elevated, may not quickly return to pre-February 28 levels because of persistent uncertainty.
Nageswaran said India receives around $120 billion in annual remittances, of which nearly $80 billion comes from workers, with $30-40 billion estimated to come from the Gulf region. Any slowdown in Gulf economies or labour markets could reduce inflows and worsen external balances.
“The current account deficit could widen from less than 1% of GDP to anywhere near 2% or 2%-plus of GDP, which we have to finance,” he said, adding that India must remain attractive for both domestic and foreign investment.
He said India’s refining capacity, recent free trade agreements with the UK and expected deals with the EU and the US could support manufacturing investment and exports. Gross foreign direct investment, he noted, could rise to $90-95 billion in FY26, indicating continued investor interest in India.
On the fiscal situation, Nageswaran said the budgeted fiscal deficit target of 4.3% for FY27 would be ‘under challenge’ because of rising fertiliser, crude oil and petroleum product prices that may increase subsidy burdens. However, he said India enters the year with some fiscal room after reducing the deficit ratio to 4.4% in FY26.
The CEA also flagged growing external risks from China’s Orders 834 and 835, which he said could make it harder for multinational firms to diversify supply chains away from China. The measures, he said, could impose legal and financial risks on firms shifting production elsewhere, underscoring the need for India to build its own supply-chain security framework and leverage market access to attract global manufacturers.
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