India’s merchandise trade deficit stood at USD 25 bn in Dec-25, up marginally from the five-month low of USD 24.5 bn in Nov-25, but well below the record high seen in Oct-25 (USD 41.9 bn). While export momentum cooled off in Dec-25 following a strong performance in Nov-25, imports staged a mild sequential recovery.

Merchandise exports

Merchandise exports rose to a nine-month high of USD 38.5 bn in Dec-25 (+1.0% MoM and +1.9% YoY) vis-à-vis USD 38.1 bn in Nov-25. 

• Out of 14 key sub-categories of exports, 8 registered annualized expansion. 
• The strongest annualized performance was recorded for Plantation products (31.1%), followed by Ores & minerals (21.0%), Electronic goods (16.8%), Marine products (11.7%), and Other miscellaneous goods (7.2%). 
• In contrast, there was an annualized drag on account of 6 sub-categories, led by Plastic and Rubber (-9.6%), Agri & allied products (-8.2%), Petroleum products (-6.5%) and Leather goods (-3.8%). 
• Core merchandise exports (i.e., exports excluding Petroleum and Gems & Jewellery) increased to USD 32.0 bn in Dec-25 from USD 31.6 bn in Nov-25. 

Merchandise imports

Merchandise imports edged up to USD 63.6 bn in Dec-25 from USD 62.7 bn in Nov-25 (+1.4% MoM and +8.7% YoY), remaining well below the record high of USD 76.1 bn in Oct-25.

• Out of 15 key sub-categories of imports, 11 registered annualized expansion. 
• The sharpest annualized increase was seen in Textiles (82.0%), followed by Electronic goods (22.2%), Ores and Minerals (21.1%), Project goods (19.6%), and Agri & allied products (18.1%) among others. 
• The annualized drag on imports was driven by contraction in Leather goods (-8.9%), Transport equipment (-7.1%), Paper and related products (-6.1%) and Plastic and rubber (-1.2%). 
• While Core imports edged higher, Non-core merchandise imports remained only a tad lower than Nov-25:
  1. Core merchandise imports (i.e., imports excluding Petroleum and Gems & Jewellery) saw a modest 2.6% sequential expansion to USD 42.7 bn in Dec-25. 
  2. Non-Core merchandise imports eased further to USD 20.9 bn vis-à-vis USD 21.0 bn in Nov-25, and well below the elevated levels seen in Oct-25 (USD 33.3 bn).
     • Within this, gold imports continued to normalise, edging up marginally to USD 4.1 bn in Dec-25 (+2.8% MoM) after declining by more than 70% MoM in Nov-25, following the post festive surge. 
     • Even silver imports eased further to USD 0.7 bn in Dec-25 from USD 1.0 bn in Nov-25, retreating from a record high of USD 2.7 bn recorded in Oct-25.

Merchandise trade balance

The merchandise trade deficit stood at USD 25 bn in Dec-25 (up 0.5 bn) after touching a five-month low in Nov-25. The modest sequential increase was attributable to a widening in the core deficit, which more than offset the marginal easing in the non-core trade deficit.

• The non-core trade deficit stood at USD 14.4 bn in Dec-25, fractionally lower than USD 14.5 bn seen in Nov-25, while remaining well below the Oct-25 high of USD 27 bn. 
  1. This largely reflected a mild sequential easing in the petroleum deficit at USD 10 bn (−1.8% MoM), even as the gems and jewellery trade deficit remained flat at USD 4.3 bn in Dec-25, following a steep 74% sequential decline from the unprecedented USD 16.2 bn recorded in Oct-25.
  2. The Oct-25 spike was largely transitory, reflecting festive- and wedding-related demand coinciding with record high global prices of precious metals.
• On the other hand, Core trade deficit edged higher to USD 10.7 bn USD 10 bn, from USD 10 bn in Nov-25, following a sharp correction from the 14- month high of USD 14.6 bn in Oct-25.

Services trade

• The commerce ministry’s estimate for services trade surplus for Dec-25 stood at USD 18.2 bn compared to USD 17.9 bn in Nov-25. 
• On a sequential basis, both services exports and imports rose by 3.6% and 3.0%, respectively in Dec-25, rebounding sharply from the contraction seen last month. 
• On FYTD basis, momentum in services trade surplus remains healthy – it stood at USD 151.7 bn over Apr-Dec FY26, up from USD 135.5 bn in the corresponding period in FY25.
• Services trade surplus has continued to provide strength as well as stability to India’s current account in FY26 as well as in the recent past. The push for digitization post COVID accompanied by the proliferation of Global Capability Centres has helped to diversify exports beyond the traditional IT services. Having said, the imposition of higher fees on new H1 B visas could have a marginal bearing on the IT/ITeS sector exports. Tax on offshoring work to foreign countries under the US HIRE Act (2025), if imposed, remains a bigger risk for India’s service exports going into 2026. 

Inferences and outlook

The Dec-25 trade deficit remains below the FYTD average on account of several factors -

1. Following the Oct-25 spike in the trade deficit led by gold imports, the subsequent normalization in gems and jewellery imports since Nov-25 has continued to stabilize the trade deficit. Having said, the cumulative deficit in precious metals on an FYTD basis (Apr-Dec) deficit still runs higher at USD 50 bn compared to USD 44 bn in the same period in FY25. 
2. A second consecutive month of sequential export growth, albeit marginal, underscores notable resilience even as Dec-25 marked the fourth full month of U.S. imposed 50% tariffs. 

On the exports front, from a geographical lens, the significant moderation in annualized growth could indicate the following: 

• After the sharp rebound of 22.6%YoY in Nov-25, India’s exports to the US moved back into the contractionary zone at -1.8% YoY in Dec-25. In parallel, incipient signs of tariff-induced adjustment in India-US bilateral trade flows are now visible. Over the Sep-Dec25 period, India’s cumulative trade surplus with the US narrowed sharply by 27.1% despite exports remaining broadly resilient (-0.8%), as an 18% surge in US imports drove this contraction.
• Meanwhile, non-U.S. exports over the same period provided a cushion, with exports to China continuing their strong performance (58.5%) alongside strong gains to Africa (14.6% Sep-Nov) and ASEAN (6.7% Sep-Nov), more than offsetting the stall in U.S.-bound shipments.
• Although exports to Netherlands, UK, Saudi Arabia, and Singapore, weakened during Dec-25, the drag was outweighed by higher shipments to China, Malaysia, Hong Kong, and Spain, among others. 

Notwithstanding the 50% tariff, strength in services trade surplus (up 12.0% FYTD26) continues to underpin the resilience in goods exports, keeping the pressures on the current account well anchored. While the cumulative ~6% INR depreciation likely offered transitory support, by allowing exporters to partially absorb tariff pressures and defend market share, sustaining export momentum will hinge critically on the timely conclusion of the India–U.S. trade deal. Having said, India’s narrowing trade surplus with the U.S, alongside a sharp decline in oil imports from Russia (−29% MoM in Nov-25) and the recently signed U.S. LNG import agreement, should strengthen its negotiating position and support a meaningful recalibration of tariffs toward the 15–20% range, broadly in line with Asian peers. While India’s recent ‘look west’ approach via an expanded FTA footprint does offer hope for potential market diversification, especially as the India–EU FTA now appears to be gaining traction, the track record so far has been mixed. For instance, despite the India–Australia ECTA being in place since Dec-22, initial modest gains in FY25 (8%) were followed by a sharp contraction (13.3%) on an FYTD26 basis. Consequently, timely operationalization of these trade accords along-with deeper industry integration will be key for overcoming tariff-induced headwinds.

Overall, we retain our FY26 CAD forecast at 1.3% of GDP for now.

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