A report from Bank of Baroda indicates that India’s unprecedented trade deficit of $333.2 billion in fiscal year 2026 will likely decrease in the near future, thanks to several trade agreements established with various nations during the period.
The analysis predicts a gradual decline in recent oil price increases and estimates the current account deficit at 1.5% to 2% of GDP for fiscal year 2027. However, it highlights potential risks if ongoing geopolitical issues continue.
Merchandise exports increased by 0.9% in fiscal year 2026, reaching $441.7 billion, compared to a 0.2% rise in the prior year. Imports jumped 7.5% to $775 billion from $721 billion previously. The services surplus expanded to $213.9 billion from $188.8 billion, yet the total trade deficit, encompassing both merchandise and services, grew to $119.3 billion from $94.7 billion in fiscal year 2025.
Gold and silver imports significantly burdened the overall import costs. Gold imports rose 25% in fiscal year 2026 following a 27% increase the year before, while silver imports soared 151%, offsetting an 11.3% drop from the previous period, fueled by elevated prices and robust local demand.
Imports of electronic products exceeded $100 billion, growing 17.9% compared to 8.5% in fiscal year 2025, and machinery imports advanced 15.8% against 9.1% previously. Non-oil, non-gold imports increased 10.9%, reflecting strong internal demand.
Despite a 58% surge in crude oil prices due to the Strait of Hormuz shutdown amid West Asian tensions, oil imports decreased 6.5% over the full year. From April to February in fiscal year 2026, crude prices fell 1% year-over-year, mitigating the impact on oil import expenses.
In exports, electronic items excelled with 24.2% growth, similar to 24.9% in fiscal year 2025. Engineering goods expansion slowed to 5% from 13.5%, pharmaceuticals rose 2.1% from 9.1%, and the decline in gems and jewelry narrowed to 5.5% from 8.8%.
Imports of pulses dropped 34.4% in fiscal year 2026 after a 46.3% increase the prior year, and edible oil import growth eased to 12.4% from 16.7%.
By region, imports from China climbed 16% compared to 11.5% in fiscal year 2025, and those from the United States rose 15.9% from 8.1%. Imports from Russia fell 13.2% after a 4.3% gain previously, due to limits on Russian oil, while growth from the UAE decelerated to 0.7% from 31.9%.
The report emphasizes that India’s core economic indicators are stable, and the external sector should improve as geopolitical tensions resolve, aided by the recent trade pacts. Nonetheless, it warns that prolonged disruptions could elevate commodity prices and heighten strain on the current account deficit.
