Healthy services exports and remittances likely to keep CAD modest in 2025-26
Malhotra noted that a strong performance in services exports, together with robust remittance inflows, should help keep the current account deficit (CAD) modest during 2025-26. This combination can provide a stabilising cushion for the balance of payments as the economy navigates external pressures.
How services and remittances help
Services exports — including IT and software services, professional and financial services, and travel-related earnings — tend to be high-margin and less volatile than many goods exports. They bring in foreign currency without the same import dependency that goods often require.
Remittances from workers abroad are a steady and counter-cyclical source of inflows. They support domestic consumption and help finance the CAD by directly adding to foreign exchange receipts.
What this means for the economy
- Exchange rate stability: Adequate inflows can reduce pressure on the currency and limit sharp swings.
- Policy flexibility: A modest CAD gives monetary and fiscal authorities more room to respond to shocks without resorting to aggressive tightening.
- Investor confidence: Predictable external balances can improve the outlook for foreign investment and borrowing costs.
Risks to watch
- Slower global demand that weakens services consumption abroad.
- Rises in commodity prices or import bills that widen the trade deficit.
- Volatile capital flows or geopolitical disruptions that affect external financing.
- Domestic factors such as inflation or policy missteps that dent competitiveness.
Overall, healthy services exports and strong remittance receipts are positive signs for keeping the CAD in check during 2025-26, but policymakers and markets will still need to monitor external and domestic risks closely.