India considering several measures to stop CAD from widening further, says Piyush Goyal

The Union Commerce Minister stated that India is actively considering several measures to prevent the current account deficit (CAD) from widening further, wi...

What Happened

The Union Commerce Minister stated that India is actively considering several measures to prevent the current account deficit (CAD) from widening further, with a focused effort on improving merchandise exports.
The minister called for greater use of domestically manufactured machinery by Indian industry, signalling a push to reduce capital goods imports while boosting the domestic manufacturing ecosystem.
India's services exports — particularly IT, business services, and travel — remain a key offset to the merchandise trade deficit, but goods exports growth has lagged behind import growth.
India's merchandise trade deficit for FY 2025–26 widened as merchandise exports grew at approximately 4.22% while imports grew faster, increasing the overall trade deficit.
India's position as the world's largest recipient of remittances — over $129–137 billion in 2024 — provides a significant current account buffer alongside services exports.

Static Topic Bridges

Current Account Deficit (CAD) — Definition, Components, and Significance

The Current Account is one of the two principal components of the Balance of Payments (BoP), the other being the Capital and Financial Account. The Current Account records all transactions in goods, services, primary income (investment income, compensation of employees), and secondary income (remittances, transfers). A Current Account Deficit (CAD) occurs when the total value of goods and services imported, plus net income outflows, exceeds corresponding exports and inflows.

Balance of Payments structure: Current Account + Capital and Financial Account + Errors and Omissions = 0.
Current Account components: (i) Merchandise trade (goods); (ii) Services trade (invisibles — IT, travel, financial, insurance); (iii) Primary income (investment returns, salaries); (iv) Secondary income (remittances, transfers).
India's CAD in Q3 FY2025 (October–December 2024): $11.5 billion or 1.1% of GDP (compiled by RBI).
RBI publishes quarterly BoP data; the "safe zone" threshold for India's CAD is generally considered to be below 2.5–3% of GDP.
India's merchandise trade deficit for FY 2024–25: exports ~$437 billion; imports ~$720 billion; goods deficit ~$283 billion.

Connection to this news: The minister's focus on export promotion and substituting imported machinery with domestic alternatives targets the merchandise trade deficit — the primary driver of CAD widening.

India's Export Competitiveness — Merchandise vs. Services

India's trade profile shows a structural asymmetry: services exports are globally competitive (India is the world's seventh-largest services exporter), but merchandise export growth has been sluggish. In FY 2024–25, merchandise exports grew only ~0.63% year-on-year while imports grew ~6.37%, widening the goods deficit by ~15%. The services surplus, by contrast, rose from $39.9 billion (Q2 FY24) to $44.5 billion (Q2 FY25). Key merchandise export categories include engineering goods, petroleum products, pharmaceuticals, textiles, and chemicals.

India's top merchandise export categories: petroleum products, engineering goods, gems and jewellery, pharmaceuticals, chemicals, textiles and apparel.
Top import categories: crude oil and petroleum products (largest single import), gold, electronic goods, machinery (capital goods), and chemicals.
India's gold imports contribute significantly to the goods deficit; India imported approximately $14.5 billion in gold in a recent quarter — one of the highest recorded.
Foreign Trade Policy (FTP) 2023 (released March 2023, replacing FTP 2015-20) — sets the framework for export promotion; target: $2 trillion in exports (goods + services) by 2030.
Directorate General of Foreign Trade (DGFT) under Ministry of Commerce administers export promotion schemes including RoDTEP (Remission of Duties and Taxes on Export Products), replacing MEIS.

Connection to this news: The minister's call for using Indian-made machinery targets a specific import category — capital goods — where domestic production can substitute imports, directly reducing the goods deficit.

Remittances as a CAD Buffer

India has been the world's largest recipient of remittances since 2008. Remittances flow into India's Current Account as Secondary Income credits and partially offset the merchandise trade deficit. In 2024, India received over $129–137 billion in remittances (World Bank and UN-IOM estimates vary), accounting for 14.3% of global remittances — the highest share recorded for any country since 2000. The top sources are the United States, UAE, United Kingdom, Singapore, and Saudi Arabia, corresponding to large Indian diaspora communities.

India: world's largest remittance recipient since 2008; 2024 inflows: ~$129–137 billion.
World Bank 2024 ranking: India ($129 bn) > Mexico ($68 bn) > China ($48 bn) > Philippines ($40 bn) > Pakistan ($33 bn).
Remittances are more stable than FDI or portfolio flows; they tend to be counter-cyclical (rise during host-country downturns as diaspora sends more).
RBI regulates inward remittances under Foreign Exchange Management Act (FEMA), 1999; the Money Transfer Service Scheme (MTSS) governs retail remittance corridors.
Remittances are distinct from Foreign Direct Investment (FDI) and External Commercial Borrowings (ECBs), which flow into the Capital and Financial Account.

Connection to this news: The minister highlighted that services exports ($175–200 billion offset to the $250–300 billion merchandise deficit) and remittances together keep the net CAD manageable at approximately 1% of GDP, even as measures to reduce the merchandise deficit are being considered.

Foreign Trade Policy (FTP) and Export Promotion Framework

India's export policy operates under the Foreign Trade (Development and Regulation) Act, 1992 (amended 2010), which empowers the Central Government to formulate export-import policy. The Ministry of Commerce and Industry, through DGFT, implements schemes to boost export competitiveness. Key instruments include export incentive schemes, Export Promotion Capital Goods (EPCG) scheme (allows import of capital goods at zero/concessional duty for export production), and advance authorisation.

Foreign Trade (Development and Regulation) Act, 1992 — statutory basis for EXIM policy; Ministry of Commerce administers.
FTP 2023 (effective April 1, 2023): targets $2 trillion in exports by 2030; introduces Remission of Duties and Taxes on Exported Products (RoDTEP); replaces MEIS (struck down by WTO dispute).
EPCG Scheme: permits import of capital goods at zero customs duty if 6x the duty saved is exported within 6 years.
Production-Linked Incentive (PLI) Schemes (announced from 2020 onwards, across 14 sectors) aim to boost domestic manufacturing and reduce capital goods imports — directly relevant to the minister's call for greater use of Indian machinery.
India's bilateral trade agreements: India-UAE CEPA (2022), India-Australia ECTA (2022), ongoing India-EU FTA negotiations — these expand market access for merchandise exports.

Connection to this news: The measures under consideration to contain CAD likely include enhanced export incentives, PLI-linked capital goods promotion, and potentially calibrated import duties on non-essential goods — all instruments available under the FTP and trade policy framework.

Key Facts & Data

India's CAD in Q3 FY25 (Oct–Dec 2024): $11.5 billion = 1.1% of GDP (RBI)
India's merchandise exports FY 2024–25: ~$437 billion; imports: ~$720 billion; goods deficit: ~$283 billion
India's services exports surplus (Q2 FY25): $44.5 billion
India's remittances received (2024): $129–137 billion — world's largest recipient (World Bank / UN-IOM)
India's share of global remittances (2024): 14.3% — highest since 2000
Foreign Trade (Development and Regulation) Act, 1992 — statutory basis for EXIM policy
FTP 2023 export target: $2 trillion in goods + services by 2030
PLI Schemes: 14 sectors; announced from 2020–21 onwards to boost domestic manufacturing
RoDTEP — replaces WTO-inconsistent MEIS; provides duty remission on inputs used in exports