India’s merchandise trade deficit widened sharply to a 3-month high at USD 28.4 bn in Apr-26, vis-à-vis USD 20.7 bn in Mar-26. While both exports and imports recorded their sharpest sequential expansion in 13 months, the relatively stronger double-digit gain in imports drove the deterioration in the trade deficit.

Merchandise exports

Merchandise exports jumped to USD 43.6 bn in Apr-26 vis-à-vis USD 38.9 bn in Mar-26, clocking their second-highest level on record since the peak observed in Mar-22. (+11.9% MoM and +13.8% YoY).

• Out of 14 key sub-categories of exports, 10 registered an annualized expansion including 5 with strong double-digit gains, led by Electronics (40.3%), Petroleum products (34.7%), Miscellaneous goods (26.2%), Marine products (14.7%), and Ores & Minerals (13.3%). 
• In contrast, the only sub-categories to emerge as growth laggards were Stone, Plaster & Cement (-41.4%), Gems & Jewellery (-7.1%), Textiles (-4.7%) and Agri & Allied products (-1.9%). 
• Core merchandise exports (i.e., exports excluding Petroleum and Gems & jewellery) eased a tad lower to USD 31.6 bn in Apr-26 (vs USD 31.7 bn in Mar-26) while remaining 10.4% higher on a YoY basis. 

Merchandise imports

Merchandise imports rose to a 6-month high of USD 71.9 bn in Apr-26 compared with USD 59.6 bn in Mar-26 (+20.7% MoM and +10% YoY).

Out of 15 key sub-categories of imports, 11 registered annualized expansion including 8 with double-digit gains. 

• These were led by Project goods (99.9%), Gems & Jewellery (51%), Leather goods (39%), Electronics (38.2%), Agri & Allied products (28.3%), and Ores & Minerals (16.5%) among others. 
• The annualized drag was confined to Chemicals & products (-11.2%), Petroleum products (-10%), Textiles, and Paper & related products (-6.8% each). 
• Core merchandise imports (i.e., imports ex Petroleum and Gems & jewellery) rose to a record monthly high of USD 45.9 bn in Apr-26, compared with USD 41.9 bn in Mar-26.
• However, Non-core imports saw a steeper sequential ascent from USD 17.7 bn in Mar-26 to USD 26.1 bn in Apr-26, which drove the overall imports higher. 

• Petroleum imports rose to their highest level in 12 months to USD 18.6 bn vis-à-vis USD 13.0 bn in Feb-26.
• Gold imports rebounded sharply by +84% MoM to USD 5.6 bn in Apr-26, after sequentially declining for two consecutive months, even as silver imports continued to edge lower to a 10-month low. 

Merchandise trade balance

The widening in merchandise trade deficit in Apr-26 was driven fairly evenly by both the core and the non-core segments.

• Non-core trade deficit rose to USD 14.2 bn from USD 10.5 bn in Mar-26, likely driven by higher price effect as opposed to a volume effect keeping the import bill elevated. Corroborating this, import volumes of Crude and Petroleum products declined by 16.6% YoY in Mar-26 amid severe energy supply shortages from West Asia, a trend likely persisting into Apr-26. 
• In tandem, the Core trade deficit also deepened to USD 14.2 bn from USD 10.2 bn in Mar-26, driven primarily by a widening of deficit in the Ores & Minerals and Electronics sub-categories, alongside a narrowing of surplus in Chemicals.

Services trade

• The commerce ministry’s estimate for services trade surplus for Apr-26 stood at a healthy USD 20.6 bn compared with USD 21.0 bn in Mar-26. 
• On an annual basis (May-25–Apr-26), services trade surplus stood at USD 221 bn, significantly higher than USD 191 bn over the same period last year, continuing to provide stability to India’s current account.

Inferences and outlook

From a geographical perspective, Apr-26 trade data reflected the following:

• India’s exports to the US, for the first time in five months, returned to positive growth territory (+1.1% YoY). This was also mirrored in manufacturing PMI new export orders, rising at their fastest pace in nine months.
• In parallel, exports to the rest of world rose by 17.3% YoY led by robust triple-digit annualized expansion in shipments to Sri Lanka, Singapore, and Tanzania. Additionally, exports to markets such as Hong Kong, Bangladesh, Malaysia, Australia, and Vietnam also recorded strong gains ranging between 50-100%. 

Apr-26 marked the second month of the ongoing Middle East crisis. While the conflict appears to have somewhat eased with a ceasefire in place, lingering economic spillovers continue to keep India’s trade outlook clouded.

• Owing to an acute 50-70% dependence on key energy imports, continued blockade of the Strait of Hormuz has kept the Indian Crude Basket (ICB) elevated at an average ~USD 119 pb over Mar-Apr-26 (+70% YoY vs. the same period last year) and it continues to average ~USD 106.2 pb as of 15^th May-26. 

1. The resultant price shock could bloat India's oil import bill in FY27, which had cumulatively declined by 6.3% in FY26 (vs +3.9% in FY25). 
2. Having said, the recent hike in domestic fuel prices, alongside work-from-home advisories and states-led fuel conservation measures, could help moderate fuel consumption at the margin.

• Meanwhile, broader input cost pressures have intensified which could put upward pressure on the import bill in the coming months. For context:

1. Manufacturing PMI input prices touched a 44-month high, and services input costs reached an 18-month peak in Apr-26. 
2. The IMF Primary Commodities Index rose by 31.6% YoY driven by strong gains across fertilizers (+48%), energy transition metals (+45.6% YoY) and industrial metals (+26% YoY).

• Higher input costs are already visible in Core WPI inflation (excluding indices for food & beverages and fuel items), which jumped to a 43-month high of 5.7% YoY in Apr-26. The uptick was led by strong price gains across Miscellaneous goods, Textiles, Basic metals and Chemicals. Ceteris paribus, rising cost pressures for exporters, if translates into higher output prices could potentially undermine India’s export competitiveness. 
• The INR has remained under sustained weakening pressure, depreciating 10.6% during FY26 and by a further 3.6% since the ceasefire announcement on 8th Apr-26. This would exacerbate pressures on the CAD even as competitiveness gains for goods exports remain limited, owing to higher imported input dependence across key sectors. In addition, other key external buffers including inward remittances from the Gulf region(~38%) remain vulnerable.

Having said, a few tailwinds on the trade and domestic policy front continue to offer support. 

• With exports to the US showing recovery, the anticipated conclusion of the India–US trade deal amid constructive progress in talks, is likely to lend further traction in the coming months.
• Further, as the recent FTAs with the EU, the UK, New Zealand and Oman get operationalised over the coming quarters, a near duty-free access to ~20.5% of India’s exports (in FY26) could significantly boost India’s export momentum and influence its medium-term export trajectory. 
• On the domestic policy front, the recently announced hike in import duty on gold and silver from 6% to 15% aims to curb discretionary demand and ease pressure on the external account. In line, estimates by the World Gold Council suggest, every 1% increase in import duty could reduce consumer demand by nearly 0.8%.

1. Having said, the relatively price-inelastic nature of these assets in the Indian context could somewhat limit the extent of the intended demand compression. Recall, even as international gold and silver prices surged 52.5% and 74.7% respectively in FY26, gold import volumes declined by only 4.8%, while silver imports rose sharply by 42%. 
2. Nonetheless, the latest quantity cap on duty-free gold imports to 100 kg under the Advanced Authorisation Scheme coupled with stricter physical verification requirements, could aid in curbing raw gold imports by disincentivising the underlying jewellery exports.

• In parallel, given India’s acute import dependence for ~57% of its annual edible oil consumption, the continued upward revision of MSP on oilseeds, including the latest hikes of +8.1% for Sunflower and +7.1% for Soybean augur well for domestic oilseed production for the upcoming kharif season. 

Assuming an average crude oil price of USD 85 pb in FY27, we project India’s current account deficit at 1.8% of GDP, although the forecast remains highly contingent on the intensity and longevity of the ongoing Middle East crisis.

 Table 1: Highlights of India’s trade balance*

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

Chart 1: India’s trade deficit widened in Apr-26, led by both Core and Non-core segments