KEY TAKEAWAYS: India's merchandise trade deficit widened to the highest level in 6 months in Jul-26, at USD 32.0 bn compared to 30.4 bn in Jun-26. Both exports and imports recorded a sequential expansion, with increase in imports exceeding that of exports.  Merchandise exports rose to USD 44.2 in Jul-26 from a 3-month low of USD 40.4 bn in Jun-26 (9.5% MoM and +19.6% YoY).  Merchandise imports soared to a record high of USD 76.2 in Jul-26 from USD 70.3 bn in Jun-26 (7.6% MoM and 17.5% YoY). The widening in Jun-26 merchandise trade deficit was led entirely by Core trade deficit (as Non-core trade deficit remained largely unchanged). Despite a challenging global backdrop amidst a prolonged Middle East conflict that has led to widespread supply disruptions and escalation in freight costs, India’s merchandise trade has continued to show remarkable resilience. We note that there has been a remarkably high growth in imports from countries such as Oman, Brazil, and Nigeria, reflecting India’s recent initiatives to diversify the source of petroleum, crude, and products imports. While the geopolitical situation has turned somewhat less concerning for now, it continues to remain a risk factor on watch. As such, we continue to hold on to our base-case expectation of crude price averaging between USD 80-85 pb in FY27 and India’s current account deficit clocking at 0.9% of GDP in FY27.

India's merchandise trade deficit widened to the highest level in 6 months in Jul-26, at USD 32.0 bn compared to 30.4 bn in Jun-26. Both, exports and imports recorded a sequential expansion, with increase in imports exceeding that of exports. 

 

Merchandise exports

Merchandise exports rose to USD 44.2 in Jul-26 from a 3-month low of USD 40.4 bn in Jun-26 (9.5% MoM and +19.6% YoY). Jul-26 marked the 3^rd highest level of exports on record (the 2^nd highest was clocked in May-26). 

• Out of 14 key sub-categories of exports, 9 registered an annualized expansion with gains led by Petroleum products (67.6%), Electronics (57.4%), Marine products (17.8%), Machinery items (17.7%), and Ores & minerals (17.4%).
• The five export categories that registered annualized contraction were Stone, plastic & cement (-16.4%), Plantation products (-9.7%), Leather goods (-5.6%), Agri & allied (-2.1%) and Gems & jewellery (-2.7%). 
• Core merchandise exports (i.e., exports excluding Petroleum and Gems & Jewellery) rose to a record high of USD 35.0 bn in Jul-26 from USD 33.1 bn in Jun-26, clocking an annualized growth of 14.9%. 
• Notably, in absolute terms, electronics exports at USD 5.9 bn in Jul-26 were at a record high. 

 

Merchandise imports

Merchandise imports soared to a record high of USD 76.2 in Jul-26 from USD 70.3 bn in Jun-26 (7.6% MoM and 17.5% YoY).

• Out of 15 key sub-categories of imports, 13 registered annualized expansion. These were led by Electronic goods (58.8%), Chemicals (44.3%), Textiles (43.4%), Petroleum products (40.1%), and Machinery (28.6%).
• The annualized drag was confined to Gems & Jewelry (-2.2%) and Paper and related products (-8.0%) only. 
• Notably, Electronic goods, Machinery items and Base metals created a record high monthly import of USD 14.4 bn, USD 6.7 bn and USD 4.9 bn respectively in absolute terms. 
• Core merchandise imports (i.e., imports ex Petroleum and Gems & Jewellery) rose to a fresh record monthly high of USD 51.8 bn in Jul-26 compared to USD 48.3 bn in Jun-26.
• On the other hand, Non-core imports rose marginally in Jul-26, to USD 24.4 bn from USD 22.6 bn in Jun-26. 
  1. Petroleum imports eased further for the second consecutive month to USD 18.3 bn from USD 19.3 bn in Jun-26, as global Brent prices remained rather well-behaved post the US-Iran MoU announcement in late Jun-26. Recall, Crude oil price averaged at USD 83.8 pb in Jul-26 compared to USD 89.3 pb in Jun-26.
  2. Meanwhile, Gems & Jewellery import bill nearly doubled to USD 6.1 bn in Jul-26 from a near 3-year low of USD 3.3 bn in Jun-26. This increase despite a global dip in gold prices as well as higher import duties, could perhaps be explained by build-up in inventories ahead of festive season onset. 

 

Merchandise trade balance

The widening in Jun-26 merchandise trade deficit was led entirely by Core trade deficit (as Non-core trade deficit remained largely unchanged).

• Core trade deficit widened to USD 16.8 bn from USD 15.1 bn in Jun-26, driven primarily by a widening of the deficit in Miscellaneous items and Ores & Minerals and narrowing of surplus in Agri & allied products. 
• Non-core trade deficit remained largely unchanged as a narrower deficit for Gems & Jewellery was offset by widening for that of Petroleum products. 

 

Services trade

• The commerce ministry’s estimate for services trade surplus for Jul-26 moderated to USD 17.0 bn from USD 17.9 bn in Jun-26. 
• Compared to previous months, while services exports came off marginally, there was a pick-up in services imports to the second highest level on record. 
• Historically, India's services trade surplus has been a key source of stability for its current account, rising to 5.5% of GDP in FY26 from 5.0% in FY25.

 

Inferences and outlook

Despite a challenging global backdrop amidst a prolonged Middle East conflict that has led to widespread supply disruptions and escalation in freight costs, India’s merchandise trade has continued to show remarkable resilience.

 

From a commodity X geographical perspective -

• We note that there has been a remarkably high growth (triple-digit) in imports from countries such as Oman, Brazil, and Nigeria, reflecting India’s recent initiatives to diversify the source of petroleum, crude, and products imports.
• On the export front too, robust growth in FY27 so far has been led by Tanzania and Sri Lanka (triple-digit expansion), followed by Singapore, Malaysia, and South Africa (50-100% YoY). Hong Kong, Vietnam, China, Japan, and Italy recorded a healthy pace of expansion between 25-50% YoY. Broadly this has been led by categories of electronics, engineering goods and petroleum products.

While the geopolitical situation has turned somewhat less concerning for now, it continues to remain a risk factor on watch. As such, we continue to hold on to our base-case expectation of crude price averaging in the range of USD 80-85 pb in FY27 (premised on geopolitical noise remaining a constant in the background, albeit at a lower intensity). Thereby, we project India’s current account deficit at 0.9% of GDP for FY27 vs. 0.6% in FY26. 

Table 1: Highlights of India’s trade balance*

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

Chart 1: Pick-up in maritime trade through the Strait of Hormuz continues to remain impaired