India's Trade Deficit to hit 1.2% of GDP in FY26 amid export uncertainty
India's trade deficit is projected to widen to 1.2% of GDP in FY26, driven by export uncertainties due to potential US tariffs. The merchandise trade deficit surged to USD 26.42 billion in April 2025, fueled by rising imports and declining exports. Despite this, the services sector remains robust, offering some relief amidst global economic challenges.
New Delhi [India], May 19 (ANI): India's trade outlook for the current financial year remains uncertain due to the looming threat of reciprocal tariffs by the United States, according to a report by Union Bank of India.
The report expected India's current account deficit (CAD) to widen to 1.2 per cent of GDP in FY26, up from an estimated 0.9 per cent in FY25.
It said "We continue to maintain our view of widening in C/A deficit in FY26 to 1.2 per cent in GDP vis-a-vis an estimated 0.9 per cent in FY25. That said, outlook for exports remains uncertain due to the looming threat of reciprocal tariffs by the US on trading partners".
The bank highlighted that even though there is a 90-day pause on the proposed US tariffs, the threat still exists and continues to weigh on the outlook for Indian exports.
Merchandise trade deficit widened significantly to USD 26.42 billion in April 2025, compared to USD 21.54 billion in March 2025. This was much higher than the estimate of around USD 20 billion, and also exceeded the USD 19.19 billion recorded in April 2024.
The report attributed the widening of the trade deficit to a sharp rise in imports amid ongoing trade disruptions. On a month-on-month basis, imports increased by USD 1.4 billion while exports declined by USD 3.5 billion.
Among trade sub-segments, the oil and gold trade deficit narrowed in April 2025 compared to the previous month. However, this was offset by a steep increase in the non-oil non-gold (NONG) trade deficit, which nearly tripled on a monthly basis.
The NONG trade deficit widened by approximately USD 7 billion, with the major contributors being chemicals (42 per cent), machinery (20 per cent), and electronics (10 per cent).
The report suggested that the sharp jump in NONG imports could indicate early signs of dumping-related activity in these sectors, which is impacting trade dynamics.
Despite the widening goods deficit, India's services trade surplus remained strong. The surplus stood at USD 17.8 billion in April 2025, only slightly lower than USD 18.1 billion in March 2025, and significantly higher than the USD 13.4 billion recorded in April 2024.
The strong performance in the services sector is seen as a positive trend, especially in the context of a slowing global economy. According to the report, the services surplus is expected to provide some relief to India's overall current account position in the coming months. (ANI)