India trade deficit widens 26% in FY26 as gold surges

What changed in India’s trade picture

India’s external trade numbers are showing two parallel trends. On one hand, annual trade hit record levels in FY26, helped by steady services exports and resilient demand in some markets. On the other, the gap between imports and exports widened as inbound shipments rose faster than outbound goods.

Government data cited in the report put India’s overall trade deficit, including goods and services, at USD 119.3 billion in FY26, up 26% from USD 94.66 billion in FY25. The widening came in a year when merchandise exports were nearly flat, while imports grew at a faster pace.

May: exports at a six-month high, deficit widens

In May, merchandise exports rose to a six-month high. The report said exports increased 18% to USD 45.2 billion. But the improvement in exports did not prevent a wider deficit.

The trade deficit widened to USD 28.21 billion, driven by a rise in imports of petroleum products amid a surge in crude oil prices. The data point is also reflected in the calendar entry for the balance of trade release.

June: trade gap narrows as imports fall

June showed a different pattern. Merchandise exports were reported at USD 35.14 billion, described as almost flat year-on-year and a seven-month low. Imports fell 3.71% year-on-year to USD 53.92 billion.

That left a trade deficit of USD 18.78 billion in June, compared with USD 20.84 billion in June last year. Separately, the report referenced sequential improvement, noting the deficit had been USD 21.88 billion in May.

The trade secretary, Sunil Barthwal, said trade in June was affected by a fall in crude oil prices. The report also said crude oil imports fell to USD 13.7 billion in June from USD 14.7 billion in May, while gold imports declined to USD 1.8 billion from USD 2.5 billion.

FY26 totals: imports outpace muted exports

For FY25–26, merchandise exports grew 0.9% to USD 441.8 billion, with weak global demand and geopolitical disruptions weighing on shipments. Merchandise imports rose 7.5% to USD 775.0 billion, pushing the merchandise trade deficit up 17.5% to USD 333.2 billion.

Including services, the report said total exports rose 4.2% to USD 860.1 billion, while imports increased 6.5% to USD 979.4 billion. That widened the overall trade deficit to USD 119.3 billion. Total trade stood at a record USD 1.84 trillion, up 5.4% year-on-year.

What drove the wider deficit in FY26

The report’s breakdown argued the headline widening was not primarily oil-driven. It said petroleum imports fell 6.4% in FY26, while the deficit widened mainly due to higher gold and electronics imports.

Gold imports rose 24.1% to USD 71.98 billion, with the report attributing the increase to price appreciation, while quantity fell from 757 tons to 721 tons. Electronic goods imports rose 17.8% to USD 116.2 billion, linked to input demand from India’s expanding mobile and electronics manufacturing base.

The report also noted a “clean” measure: trade excluding petroleum and gems and jewellery ran a surplus of USD 75.00 billion in FY26, compared with USD 78.74 billion in FY25.

West Asia disruptions: Strait of Hormuz becomes a chokepoint

The West Asia conflict featured as a key operational risk during the year, particularly at the end of FY26. The report said the impact became “particularly visible” in March as shipping disruptions through the Strait of Hormuz hit both exports and imports.

In March, India’s exports to the UAE plunged 61.8% to USD 1.3 billion, while shipments to Saudi Arabia fell 45.6%. Imports from the UAE declined 66.2%, and imports from Saudi Arabia fell 36.4%.

Crude oil and petroleum-product imports dropped 35.8% year-on-year in March to USD 12.2 billion, as disruptions choked oil shipments. The report also said exports to West Asia plunged 57.95% to USD 3.5 billion in March, while imports fell 51.64%.

Oman ports and the effort to keep shipments moving

Commerce Secretary Rajesh Agarwal said India’s exports to West Asia in May were close to last year’s level despite disruptions. India’s exports to West Asia in May were USD 5.30 billion, marginally down from USD 5.38 billion in May 2025.

To support shipments, India used three ports in Oman: Duqm, Sohar and Salalah. The report also said the US-Iran conflict severely impacted the movement of ships carrying cargoes in international waters, particularly through the Strait of Hormuz.

RBI flags pressure points: weak demand and higher shipping costs

The Reserve Bank of India Governor, Sanjay Malhotra, highlighted the same fault lines in the trade outlook. During a monetary policy announcement, he said exports faced weak global demand, shipping disruptions and geopolitical tensions.

The report said merchandise exports contracted 0.2% year-on-year in the first two months of the year, while imports grew by more than 22%, primarily due to a spike in gold imports. It also cited higher freight and insurance costs linked to the West Asia conflict as an additional strain on export momentum.

Key data points at a glance

Why this matters for markets and policy

The FY26 numbers show a trade account shaped more by the import cycle than by an export boom. With merchandise exports up just 0.9%, the deficit widened mainly because imports grew faster, especially in gold and electronics.

At the same time, the West Asia shock demonstrated how quickly shipping routes can disrupt both exports and critical imports such as crude and petroleum products. The March contraction in flows through the Strait of Hormuz and the reliance on alternate ports in Oman highlight the operational side of trade risk, not just pricing.

Conclusion

India’s FY26 trade deficit widened to USD 119.3 billion, even as total trade reached USD 1.84 trillion. The report attributes much of the widening to higher gold and electronics imports, while West Asia shipping disruptions became most visible in March and influenced monthly trade prints into mid-2026.