India’s merchandise trade deficit narrowed to a five-month low of USD 24.5 bn in Nov-25 from a record high of USD 41.7 bn in Oct-25. While exports registered a healthy sequential expansion, it was the steeper fall in imports (led by precious metals, especially gold) that drove the trade deficit lower. 

Merchandise exports

Merchandise exports rose to a six-month high of USD 38.1 bn in Nov-25 (+10.9% MoM and +19.4% YoY) vis-à-vis USD 34.4 bn in Oct-25. 

• Out of 14 key sub-categories of exports, 12 registered annualized expansion. 
• The strongest annualized performance was recorded for Ores & minerals (46.8%), Electronic goods (39.0%), Miscellaneous items (29.7%), Gems and Jewellery (27.8%), Plantation products (26.9%), and Machinery products (23.8%).
• In contrast, there was an annualized drag on account of only 2 sub categories namely - Agri & allied products (-1.2%) and Plastic and Rubber (-0.5%).
• Core merchandise exports (i.e., exports excluding Petroleum and Gems & Jewellery) increased to USD 31.6 bn in Nov-25 from USD 28.1 bn in Oct-25. 

Merchandise imports

Merchandise imports moderated to USD 62.7 bn in Nov-25 from a record high of USD 76.1 bn in Oct-25 (-17.8% MoM and -1.9% YoY).

• Out of 15 key sub-categories of imports, 11 registered annualized expansion. 
• The strongest annualized performance was seen in Project goods (43%), Textiles (35.9%), Leather goods (21.9%), Chemicals (20.9%), Electronic items (16.0%), and Machinery items (14.0%) among others. 
• The annualized drag was driven by Gems and jewellery (-38.6%), Agriculture and allied products (-12.1%), Petroleum products (-11.3%), and Plastic & rubber articles (-2.4%).
• Both Core and Non-core merchandise imports eased from their Oct-25 peaks:
  1. Core merchandise imports (i.e., imports excluding Petroleum and Gems & Jewellery) saw a marginal sequential moderation to USD 41.6 bn from USD 42.8 in Oct-25
  2. Non-Core merchandise imports moderated sizably to USD 21.0 bn, down from an elevated USD 33.3 bn in Oct-25: 
     • Within this, gold imports normalised sharply, declining by more than 70% MoM to USD 4.0 bn (vs. USD 14.7 bn in Oct-25), reversing the post festive gains. 
     • Even silver imports eased to 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 sequential narrowing of the merchandise trade deficit in Nov-25 touching a five-month low at USD 24.5 bn was led by concurrent improvement in both core and non-core trade deficits. 

• The non-core trade deficit saw a sharp MoM correction, shrinking by nearly half to USD 14.5 bn from an elevated USD 27.0 bn in Oct-25.
  1. The improvement largely reflected a sharp pullback in the gems and jewellery trade deficit, declining 74% sequentially to USD 4.3 bn from an unprecedented USD 16.2 bn in Oct.
  2. The Oct-25 spike, as expected, proves to be transitory, reflecting festive- and wedding-related demand coinciding with record global price of precious metals.
• On the other hand, Core trade deficit eased meaningfully to USD 10 bn, from a 14-month high of USD 14.6 bn recorded in Oct-25.

Services trade

• The commerce ministry’s estimate for services trade surplus for Nov-25 stood at USD 17.9 bn compared to USD 17.4 bn in Oct-25. 
• On a sequential basis, both services exports and imports rose albeit marginally by 2.0% and 1.3%, respectively. 
• On FYTD basis, momentum in services trade surplus remains healthy – it stood at USD 134.1 bn over Apr-Nov FY26, up from USD 116.3 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 deterioration in the Oct-25 trade deficit was an outcome of burgeoning imports, led by gold. In comparison, Nov-25 trade deficit comes as a breath of fresh air on two counts –

1. Expectedly, imports of Gems & Jewellery mean reverted after recording an exceptional spike in the previous months, possibly owing to festive season. 
2. Exports recorded a sequential expansion, showing exceptional strength amidst third consecutive month of US imposed 50% tariff on select exports. 

Amidst the sharp correction in the precious metals trade deficit in Nov-25, the cumulative FYTD (Apr-Nov) deficit under this category is now running at USD 46 bn, i.e., only a tad higher than USD ~40 bn in the comparable period in FY25.

On the exports front, from a geographical lens, the annualized jump in export growth to a 41-month high holds significance. 

• India’s exports to the US rebounded sharply in Nov-25, registering a positive growth of 22.6%YoY after contracting for two consecutive months (-8.6% in Oct-25 and -11.9% in Sep-25), even as Nov-25 marked the third full month of the 50% tariff by the US. 
• Exports to China recorded a strong uptick, rising 90%YoY to USD 2.2 bn in Nov-25, driven by a marked acceleration in shipments of electronics and engineering goods.
• While exports to Netherlands, Singapore, Bangladesh, Saudi Arabia, South Africa, France, and South Korea weakened during the month, this was more than offset by higher shipments to China, UAE, UK, Germany, and Hong Kong, among others. 

The resilience in exports to US possibly reflects the partial absorption of tariff pressures by domestic producers in a bid to withhold their market share. Notwithstanding the 50% tariff hike, labour-intensive sectors have remained broadly resilient. For Nov-25, exports of marine products rose by nearly 15.5%YoY, while those of textile sector remained stable, supported by a 4.0% YoY increase in cotton yarn exports and an 11.2% YoY rise in readymade garments - indicating a possible strategic shift towards market diversification. Having said, the ongoing India–US trade negotiations offer a constructive outlook, with scope for tariffs likely to be recalibrated meaningfully below the current 50%, which could further support export momentum. The decline in India’s oil imports from Russia, along with recently signed US import deal for LNG, should move the needle in India’s favour for the impending trade deal to be announced hopefully soon. 

For our FY26 CAD forecast, we now revise it upwards to 1.3% of GDP from our baseline forecast of 0.8% of GDP. We had flagged off upside risk of ~30 bps in our last monthly note. 

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