The report expects CAD to be (-) 0.9 per cent of the GDP in FY26, largely reflecting a resilient domestic demand and a slowdown in external demand.
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The International Monetary Fund (IMF) on Tuesday said that short-term rollover risk of external debt for India is limited. It has referred to India’s external position for fiscal year 2024-25 as ‘moderately stronger’ than the level implied by medium-term fundamentals and desirable policies.
“India’s external debt liabilities are relatively lower compared to its peers, and short-term rollover risks are limited. The moderate level of foreign liabilities reflects India’s incremental approach to capital account liberalisation,” stated IMF’s External Sector Report released on Tuesday. External vulnerabilities, the report stated, stemmed from weakening external demand, geo-economic fragmentation, and potentially volatile global financial conditions and commodity prices.
According to the report, with buoyant services exports and declining oil prices, the current account deficit (CAD) is projected to remain smaller than its estimated norm. “Despite recent steps toward opening, India’s trade and capital account regimes remain relatively restricted, weighing on both exports and imports,” it said.
Forex, foreign assets
The report expects CAD to be (-) 0.9 per cent of the GDP in FY26, largely reflecting a resilient domestic demand and a slowdown in external demand. CAD is projected it to have widened to (-) 0.8 per cent of GDP in FY25 – a tad higher than (-) 0.7 per cent in FY24. This is on account of rising domestic demand for imports amid buoyant services exports. Gross domestic investment, at 33.4 per cent of GDP, and gross domestic savings (32.6 per cent), have remained broadly stable. “Trade restrictions, while declining, still weigh on exports and imports,” the report said.
Forex (FX) Reserves, according to the report, rose to $665.4 billion at the end of FY25 as against $646.4 billion at the end of FY24. The Reserve Bank of India’s FX interventions during this time aimed to smooth market volatility – something that the authorities considered to be excessive – and contributed to the rupee’s exchange rate stability. The IMF highlighted that official FX reserves represented 209 per cent of short-term debt (on residual maturity), 107 per cent of the IMF’s composite metric, and over eight months of import coverage.
“In view of India’s moderately strong external position, generally deep and liquid FX markets, limited FX mismatches, well-anchored inflation expectations, and adequate reserves, the Integrated Policy Framework analysis indicates that FX interventions should be limited to periods marked by destabilising risk,” noted the report.
On the issue of Foreign Liabilities and Assets and position and trajectory, the report said that by the end of 2024, India’s NIIP (Net International Investment Position) is estimated to have improved to (−) 9.6 per cent of the GDP from (−) 10.5 per cent at the end of 2023, reflecting valuation changes and nominal GDP growth partly offsetting the impact of the CA deficit.
Gross foreign assets declined to 27.9 per cent of the GDP (28.1 per cent at the end of 2023), while gross foreign liabilities declined to 37.5 per cent of the GDP (38.6 per cent). The bulk of assets were in the form of official reserves and FDI, whereas liabilities included mostly debt and FDI.
Published on July 22, 2025