India’s merchandise trade deficit widened to a record high of USD 41.7 bn in Oct-25 from USD 32.2 bn in Sep-25. While exports registered a mild sequential contraction, it was the steep jump in imports (especially gold) in the month that drove the trade deficit higher.

Merchandise exports

Merchandise exports clocked USD 34.4 bn in Oct-25 (-5.5% MoM and -11.8% YoY) vis-à-vis USD 36.4 in Sep-25.

• Out of 14 key sub-categories of exports, only 3 registered annualized expansion. 
• The strongest annualized performance was seen in Electronic items (19.1%), Marine Products (11.1%), and Plantations products (4.2%). 
• In contrast, there was an annualized drag on account of Gems & jewellery (-29.5%), Plastic and rubber (-21.6%), Machinery items (-16.7%), Leather goods (-15.7%), Chemicals (-13.2%), Textiles (-13.2%), Stone, plastic & cement (-12.4%), Petroleum products (-10.5%), etc.
• Core merchandise exports (i.e., exports excluding Petroleum and Gems & Jewellery) eased to USD 28.1 bn in Oct-25 from USD 28.6 bn in Sep-25.

Merchandise imports

Merchandise imports rose to a record high of USD 76.1 bn in Oct-25 from USD 68.5 bn in Sep-25 (+11.0% MoM and +16.6% YoY).

• Out of 15 key sub-categories of imports, 10 registered annualized expansion. 
• The strongest annualized performance was seen in Gems & jewellery (174.0%), Project goods (45.5%), followed by Textiles (29.0%), Chemicals (22.9%), and Electronic items (14.7%)
• The annualized drag was driven by Petroleum products (-21.7%), Paper products (-7.8%) and Plastic & rubber (-3.6%). 
• Both Core and Non-core merchandise imports scaled a fresh high
  1. Core merchandise imports (i.e., imports excluding Petroleum and Gems & Jewellery) saw a milder increase to USD 42.8 from USD 41.8 bn in Sep-25
  2. Of which, Imports of 3 sub-categories namely - Fruits & vegetables, Fertilizers, and Non-ferrous metals touched new monthly peaks respectively in Oct-25.
  3. Non-Core merchandise imports rose sharply to USD 29.5 bn from USD 23.6 bn in Sep-25
  4. Of which, gold imports scaled to the second highest level of USD 14.7 bn, the highest being last year in Nov-24 (at USD 14.9 bn). The difference in the timing of Diwali this year vis-à-vis in 2024 appears to have had a role to play. As such, next month could see gold imports normalize. 
  5. Of which, silver imports rose to the highest level on record of USD 2.7 bn from USD 1.3 bn in Sep-25

Merchandise trade balance

The sequential widening in the merchandise trade deficit in Oct-25 was led by Non-core deficit single-handedly. 

• Non-core trade deficit widened to a record high of USD 27 bn, from USD 19.0 in Sep-25. 
  1. This was led by a sharp jump in trade deficit in case of Gems & jewellery by USD 6.3 bn in the month, to USD 16.2 bn – accounting for nearly 80% widening of the Non-core deficit. 
  2. This can be explained by a surge in domestic demand ahead of festive and wedding season, along with record high prices of gold and silver.
• On the other hand, Core trade deficit widened, albeit marginally, to a 14-month high, of USD 14.6 bn in Oct-25 from USD 13.2 bn in Sep-25. 

Services trade

• The commerce ministry’s estimate for services trade surplus for Oct-25 stood at a record high of USD 19.9 bn, compared to USD 18.8 bn in Sep-25 (revised up from the provisional estimate of USD 15.5 bn)
• On a sequential basis, both services’ exports and imports rose by 5.0%MoM and 4.5%MoM, respectively. 
• On FYTD basis, momentum in services trade surplus remains healthy – it stood at USD 118.7 bn over Apr-Oct FY26, up from USD 101.5 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. 

Inferences and outlook

The deterioration in the Oct-25 trade deficit was an outcome of burgeoning imports, especially those of Gems & jewellery (and not so much owing to lower exports amidst higher US imposed tariff). This appears to be a consequence of elevated prices of precious metals, higher demand ahead of festive and wedding season, timing of Diwali amidst improving rural and urban income in real terms. 

To add more specificity -

• International prices of gold and silver are currently tracking an annualized gain of ~53% and ~61% respectively, for Nov-25 so far.
• Real agri rural wages are 7.3%YoY up as of Jun-25 – recording the fastest pace of expansion in over 2 years. Rural incomes have been supported by an above normal monsoon, a healthy Kharif output along with income transfers at the state level.
• In similar vein, urban incomes have been supported by low inflation, income tax reduction and more recently the rationalization in GST rates. 

On the other hand, parsing the sequential contraction in headline exports to an 11-month low, from a geographical lens shows -

• India’s exports to the US contracting for the second month in a row on an annualized basis (-11.9% in Sep-25 and -8.6% YoY in Oct-25) after witnessing a strong performance earlier in the year owing to front running ahead of tariff imposition. 
• Not just US, but exports to UK, Malaysia, Nepal, Netherlands, France, Australia, and Singapore too saw a deterioration in month, however offset by increase in exports to China and Spain. 

Looking ahead, exports to US could see further downside owing to reporting lags. The bigger concern however remains with respect to the level of tariff. Negotiations between India-US are ongoing, which could lead to tariff getting adjusted well below 50%r. Importantly, Russia’s share in India’s merchandise import basket has slipped to 6.8% in Oct-25, the lowest in 14 months. With the deadline of US imposed sanctions on Russia’s two largest oil companies (Rosneft and Lukoil) of 21^st Nov-25 approaching, India’s crude imports from Russia could see a further downside. This could serve as a trigger to withdraw the 25% penalty tariff. While India could maintain a firm stance on sensitive items under agriculture, etc., there could be a likelihood of granting greater preferential market access to the US for certain products and services.

For our FY26 CAD forecast, we now see a greater likelihood of it nudging higher to around 1.2% of GDP from our baseline forecast of 0.8% of GDP. However, a greater clarity in the ensuing month(s) on the timeline and fine-print of India-US trade negotiations will help firm up our estimate.

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