India’s merchandise trade deficit widened sizably to a 5-month high of USD 26.4 bn in Apr-25 from USD 21.5 bn in Mar-25. This was driven by a sequential slide in exports accompanied by a marginal upside in imports.

Merchandise Exports

Merchandise exports slipped from a near-2-year high of USD 42.0 bn in Mar-25 to USD 38.5 bn (-8.3% MoM) in Apr-25, though posting a healthy expansion of +9.0% on annualized basis. The sequential performance was in line with seasonality, albeit milder than the average contraction of momentum of 14.8% typically seen at the start of the fiscal year (largely unwinding from the fiscal year-end ramp-up).

Of the 14 key sub-categories of exports, 12 registered annual expansion. 

1. Best performance was seen in Electronic items (39.5% YoY) and Plantation products (38.1% YoY), followed by Ores and minerals (20.3%), Marine products (17.8% YoY) and Agri & allied products (14.4%)
2. In contrast, the drag on exports was led by 2 categories of – Chemicals & products (-3.4%), along with Miscellaneous products (-2.0%)
3. Core merchandise exports (i.e., exports excluding Petroleum and Gems & Jewellery) slipped from a record high of USD 34.2 bn in Mar-25 to USD 28.6 bn in Apr-25, clocking a strong sequential degrowth of 16.3% MoM. Growth on an annualised basis was, however, strong at 10.1%.

Merchandise Imports

Merchandise Imports rose to a 6-month high of USD 64.9 bn from USD 63.5 bn in Mar-25 (+2.2% MoM and 19.1% YoY)

1. At a granular level, 12 out of 15 key import sub-categories registered annualized expansion. 
2. Strongest growth was clocked by Project goods (147.3%), Textiles and allied products (40.1% YoY), Chemicals (34.2%) and Electronics (31.2% YoY) 
3. In contrast, the drag on imports emanated from Agri & allied products (-11.4% YoY), Leather (-4.8% YoY) and Transport equipment (-3.2% YoY).
4. Core merchandise imports (i.e., imports excluding Petroleum and Gems & Jewellery) rose to a 7-month high of USD 41.1 bn in Apr-25 from USD 40.0 bn in Mar-25. On annualized basis, core merchandise imports clocked a robust growth of 18.1%.

Merchandise Trade Balance

1. Sequential widening in monthly merchandise trade deficit was driven single-handedly by the core deficit 
   1. Core deficit widened to USD 10.7 bn from USD 3.6 bn in Mar-25, owing to sequential deterioration in trade surplus in Machinery and a swing in Chemicals from a trade surplus to a deficit. 
2. Within Non-core items, trade deficit for Petroleum products as well as Gems & Jewellery eased by USD 0.8 bn and USD 1.4 bn respectively. 

Services Trade

The estimate for services trade surplus for Apr-25 stood little changed, at USD 17.8 bn compared to USD 18.1 bn for Mar-25. While imports remained at the same level as previous month, exports adjusted lower by USD 0.3 bn. Services trade surplus has continued to impart a degree of strength as well as stability to India’s current account over the last few years. The push to digitization post COVID accompanied by the proliferation of Global Capability Centres has helped to diversify exports beyond the traditional IT services.

Outlook

Global trade outlook has taken swift twists and turns since the beginning of Apr-25. Finally, after going strong on imposing punitive tariffs on each other, US and China have sharply scaled back tariffs for a period of 90-days beginning 12^th May-25. This has led to a palpable temporary easing of trade related uncertainty at a global level. The current situation implies the likely avoidance of the worst-case scenarios painted for global growth for 2025. Having said, uncertainty is likely to linger owing to – lower than earlier announced, yet historically high tariffs, evolving policy environment and realigning of trade relations between countries/blocs. 

For India, the key trade-related news was the signing of the India-UK trade deal on 6^th May-25. As per initial information, India will get greater access to exporting auto parts, garments, and leather products to the UK, along with a larger quota of professional visas. In return, UK goods such as whiskey, cars, cosmetics, medical devices, among others, to India, will turn cheaper with a sizeable reduction in import duties.

The trade data for Mar-Apr-25 looks somewhat influenced by pre- and post-tariff announcements. For Apr-25, on the export side, growth in electronics, agri-oriented goods, along with gems & jewellery exports was strong. Exports to US clocked a growth of 27.31% YoY in Apr-25, compared to FY25 growth of ~10%. Even imports from US clocked a lofty growth of 63.76%, compared to FY25 growth of ~7%.

Looking ahead, for FY26, global geopolitics and geoeconomics will determine the course of India’s external trade. 

1. As per WTO’s latest assessment, reactivation of the suspended "reciprocal tariffs" by the United States, as well as the spread of trade policy uncertainty that could impact non-US trade relationships, poses a significant risk to the global merchandise trade outlook. If realised, reciprocal tariffs would reduce global merchandise trade volume growth by 0.6 pp in 2025, while the spreading of trade policy uncertainty could shave off another 0.8 pp. As such, 2025 could record a 1.5% decline in world merchandise trade as per the global agency. 
2. Services trade, though not directly subject to tariffs, is also likely to be adversely affected, with the global volume of commercial services trade now forecast to grow by 4.0%, slower than expected.
3. Duties imposed by the US on the iron, steel and auto industries are likely to pull down engineering exports, along with a downside to overall trade growth with a broad 10% tariff rate that remains in place. 
4. Encouragingly, crude prices have softened, owing to the OPEC+ decision to expedite supply hikes. If crude prices remain below USD 70 pb, it could offer some downside to our CAD estimate. 
5. Finally, a lot rides on the progress and shape of India-US Bilateral Trade Agreement negotiations

With the above factors on board, we retain our FY26 current account deficit forecast of 0.8% of GDP (USD 33 bn) for now.

Rupee outlook

Over the last month, the global FX market has continued to remain in a state of flux amidst the backdrop of heightened uncertainty on trade, investments, and geopolitics. Conventionally, episodes of extreme global uncertainty in the past have resulted in flows to safe-haven currencies like the CHF, JPY, and the USD. While CHF and JPY have indeed strengthened by 5.2% and 2.5% respectively since the announcement of the US reciprocal tariffs on Apr 2nd, the USD has depicted a divergent trajectory, depreciating by 3.2% in the corresponding period.

The weakness in the USD appears to be broad-based, with skewness towards DM currencies (like CHF, EUR, JPY, GBP, and AUD). Amongst EM currencies, the prime beneficiaries of USD weakness have been RUB, KRW, MYR, SGD, and THB. It is not surprising that most of these EM currencies are from Asia, and they are having their moment of reprieve as the US reciprocal tariffs that disproportionately penalised most Asian nations, are currently in a state of suspension.

Having said that, the USD bearishness might face a risk of sharp reversal as stretched market positioning reverses on emerging signs of de-escalation with thawing of US-China trade relations for now and progress on bilateral trade agreement/treaties between key countries and the US.

INR could enjoy strategic gains in the near term on account of the recent slide in inflation and anticipation of front-loading of exports to the US. However, we believe this to be transitory and likely to be actively defended by RBI intervention. We maintain our view of upward movement in USD/INR in the medium term and maintain our call of 89.50 for Mar-26 for now. The same will be reviewed once clarity emerges on the direction of India-US trade.

Below is Acuité Ratings & Research Limited's comment:

“India’s widening merchandise trade deficit in April 2025 shows rising imports outpacing exports despite growth in electronics and agri-products. Services exports continue to support the current account as always. Going forward, easing US-China tariffs and the India-UK trade deal may boost exports, but risks from potential US reciprocal tariffs and global uncertainties remain. Softer oil prices and trade reforms will be crucial to managing the current account and rupee volatility in FY26.” 

Table 1: Highlights of India’s trade balance*

  *Note: Numbers may not add up due to rounding off and revision in headline exports and imports