India's merchandise trade deficit widened to USD 30.4 bn in Jun-26 from USD 28.2 bn in May-26. Both, exports and imports recorded a sequential contraction, with moderation in exports exceeding that of imports. 

Merchandise exports

Merchandise exports slipped to a 3-month low of USD 40.4 bn in Jun-26, from a record high of USD 45.2 bn in May-26 (-10.6% MoM and +15.5% YoY).

• Out of 14 key sub-categories of exports, 10 registered an annualized expansion with strong double-digit gains led by Miscellaneous items (59.7%), Gems & jewellery (34.6%), Ores & minerals (23.1%), Plastic & rubber (21.2%), Machinery items (20.7%), Electronics (18.9%), and Agriculture & allied products (17.0%).
  1. The four export categories that registered an annualized contraction were Plantation products (-10.8%), Leather goods (-6.9%), Stone, plastic & cement (-6.8%), and Textiles (-2.6%). 
• Core merchandise exports (i.e., exports excluding Petroleum and Gems & Jewellery) eased marginally to USD 33.1 bn in Jun-26 from USD 34.2 bn in May-26 while remaining 15.3% higher on an annualized basis. 

Merchandise imports

Merchandise imports eased to USD 70.3 bn in Jun-26 from USD 73.4 bn in May-26 but were above USD 70 bn level for the third successive month (-3.5% MoM and +31.0% YoY).

• Out of 15 key sub-categories of imports, 13 registered annualized expansion, including 12 with double-digit gains. 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 Project goods (-85.4%) and Gems & Jewellery (-8.1%) only. 
• Notably, Electronic goods and Machinery items created a record high monthly import of USD 13.4bn and USD 5.8bn, respectively in absolute terms. 
• Imports of fertilizers clocked a robust growth of 201.3%YoY growth. A gradual pick-up in maritime traffic post the signing of the US-Iran MoU could have expedited import orders ahead of the kharif sowing season.
• Core merchandise imports (i.e., imports ex Petroleum and Gems & Jewellery) rose to a fresh record monthly high of USD 48.3 bn in Jun-26, compared with USD 46.1 bn in May-26.
• On the other hand, Non-core imports eased materially in Jun-26, to USD 22.6 bn from a 4-month high of USD 27.3 bn in May-26.
  1. Petroleum imports eased from a record high of USD 22.7 bn to USD 19.3 bn in Jun-26, as global Brent prices corrected post the US-Iran MoU announcement in third week of Jun-26. Crude oil price had averaged at USD 85 pb in Jun-26 compared to USD 107 pb in May-26.
  2. Meanwhile, Gems & Jewellery import bill eased further to a near 3-year low of USD 3.3 bn in Jun-26 from USD 4.6 bn in May-26. The global dip in gold prices as well as impact of higher import duties, are likely to explain this moderation. 

Merchandise trade balance

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

• Core trade deficit widened to USD 15.1 bn from USD 11.9 bn in May-26, driven primarily by a widening of the surplus in Chemicals, Electronics and Engineering goods.
• Non-core trade deficit moderated to USD 15.3 bn from USD 16.4 bn May-26, entirely owing to a narrower Gems and Jewellery deficit. 

Services trade

• The commerce ministry’s estimate for services trade surplus for Jun-26 moderated to USD 15.1 bn from USD 15.7 bn in May-26. The run-rate in past 2 months has come off, compared to previous 3m average pace of USD 19.1 bn
• 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

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

• For the third straight month, non-US markets remained the primary driver of export growth (+20.7% YoY), underpinned by sustained expansion in outbound shipments to South Africa, Italy, Tanzania, Philippines and Thailand. 
• On the import side, India’s inbound shipments grew rapidly from Latin American (Peru, Brazil, Colombia, Chile, Mexico) and Asian countries (Taiwan, Korea, China) and few others such as Hungary, Oman and Angola

On the geopolitical front, despite an extremely challenging backdrop with the closure of Strait of Hormuz, India’s merchandise trade has shown resilience in Q1 FY27. Total merchandise trade (exports + imports) clocked USD 346 bn in Q1 FY27, up from USD 292 bn in Q1 FY26. The reduction in US tariffs after the Supreme Court ruling in Feb-26 could have played a supportive role along with optimism tied to the signing of several bilateral trade deals (with UK, Oman, New Zealand, and the EU).

Having said, the geopolitical situation remains tenuous, at best. While the announcement of the US-Iran MoU on 19th Jun-26 did pave the way for reopening of the Strait of Hormuz and a sizeable correction in crude oil prices (for a period of nearly 3-1/2 weeks (but there has been a re-escalation of military conflict in the last few days. With this, Brent crude oil price has risen to USD 85 pb yet again. As such, our base-case expectation of crude price averaging in the range of USD 80-85 pb (premised on geopolitical noise remaining a constant in the background, albeit at a lower intensity) for FY27 continues to hold ground. 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 revision in headline exports and import

Chart1: India’s trade deficit widened in Jun-26, led by core deficit