The widening in India’s current account deficit last year, to 2.4% of GDP, was not as significant as many had feared in the context of the surge in commodity prices. Looking ahead, we think the deficit will narrow over the coming quarters as domestic demand remains relatively subdued and as commodity prices stay well below the highs from 2022. While the rupee will remain on the backfoot in the near-term, the improving external picture should provide a tailwind to the currency further ahead.
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