New Delhi [India], July 16 : India's goods trade deficit is projected to widen to USD 300 billion in FY26, up from USD 287 billion in FY25, as weak global demand weighs on exports while resilient domestic consumption is expected to fuel higher imports, as anticipated by ICICI Bank Global Markets in its latest report.
The report attributes the sluggish growth in merchandise exports largely to tepid demand from non-US markets. While shipments to the US have held up due to the front-loading of trade, exports to other key geographies have failed to gain momentum.
According to the trade data for June, India's goods deficit narrowed to a 4-month low of USD 18.8 billion from USD 21.9 billion in May This was driven by a lower non-oil non-gold deficit at USD 7.8 billion (USD 10.2 billion in May), while oil deficit remained steady at USD 9.2 billion (USD 9.1 billion in May). On a Year-on-Year (YoY) basis, the goods deficit was lower than the deficit of USD 20.8 billion seen in June 2024.
"So far, India's goods exports are higher to the US due to front-loading of trade, but non-US exports have remained tepid. Thus, we see a weak growth for India's goods exports in the current fiscal year, but imports could be higher due to the relative strength of the domestic economy. Thus, we see goods deficit widening to USD 300bn in FY26 (USD 287bn in FY25)," the report added.
As per the data, exports to the US grew by 24 per cent YoY in June and 22 per cent YoY in the first quarter of Financial Year 2026 (Q1FY26), but exports to other countries were lower (-5.6 per cent YoY in June and -2.7 per cent YoY in Q1FY26), underscoring the impact of lower oil exports as well as weaker demand.
Meanwhile, the country's goods exports saw a mild contraction of 0.1 per cent YoY at USD 35.1 billion in June, driven by lower oil exports (-16 per cent YoY), while non-oil exports were better placed (2.9 per cent YoY).
On a YoY basis, electronics exports remain buoyant (+47 per cent YoY), followed by chemicals (3.9 per cent YoY), plastic and rubber products (2.3 per cent YoY), agri (1.6 per cent YoY), and engineering goods exports (1.3 per cent YoY).
The report further stated that India's relatively strong domestic economy is expected to maintain robust import demand, particularly for energy, electronics, and capital goods. This imbalance between sluggish export growth and steady import demand is likely to widen the trade deficit further in the current fiscal.
The report added that ongoing uncertainties surrounding US trade and tariff policies are likely to have a deeper impact on global trade flows in 2025, compared with what was seen during Trade War 1.0 (2018-19), due to the scale of tariffs applied to sectors and countries.
The 90-day pause on Trump's reciprocal tariffs allowed some trade flows to resume over the last three months, but the recent announcements of fresh tariffs on 25 countries have reignited the underlying concerns, which are likely to impact demand if these tariffs are maintained.
Despite the uncertainties, India has been less impacted so far, with goods exports mildly positive due to higher exports of electronics, chemicals, and engineering goods.
"Higher tariffs on other regional peers also provide an opportunity for India to expand its market share in the US imports basket for selected goods," the report stated.
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