Gold Surge Widens January Trade Deficit, US Trade Deal May Steady Exports

India’s merchandise trade deficit widened sharply to $34.7 billion in January from $25 billion in December, defying the usual seasonal narrowing seen in the January–March quarter. The deterioration was driven almost entirely by a surge in precious metal imports, even as exports moderated amid elevated tariff uncertainty in the United States.

Merchandise exports fell to $36.56 billion from $38.51 billion in December, with non-oil shipments leading the decline. Imports, meanwhile, jumped to $71.24 billion from $63.55 billion, reflecting a spike in gold and silver purchases. Gold imports alone rose to $12.1 billion in January from $4.1 billion in December, as prices increased 10% month-on-month and volumes surged 165%.

Data suggest that nearly 90% of the sequential widening in the deficit can be traced to gems and jewellery. The rise in precious metal prices in recent months has amplified the import bill, masking what has otherwise been a resilient export performance in the face of steep US tariffs.

Exports to the US declined 21.8% month-on-month to $6.6 billion in January, reflecting the impact of 50% tariffs imposed earlier. January marks the last full month under those elevated rates. US President Donald Trump has since announced a reduction in tariffs on Indian goods to 18% from 50%, alongside a waiver of a 25% secondary tariff following the announcement of an interim India–US trade agreement.

Barclays expects exports to see near-term support as the tariff cuts take effect, potentially as early as this week.

Emkay Research believes the reduction in headline tariffs to 18% will provide a fillip to shipments to the US, which were still up about 6% year to date at $72 billion despite recent volatility. The brokerage anticipates a swift rebalancing towards US-bound exports, reversing some of the diversification seen in recent months.

Indeed, exports to the rest of the world have shown notable strength. Outbound shipments rose sharply to Spain, China, Hong Kong, Vietnam and the UAE between September 2025 and January 2026, cushioning the blow from US tariffs. Still, economists argue that lower US tariffs will likely prompt exporters to pivot back to their largest market.

Encouragingly, services exports reached a record high in January, reinforcing India’s external buffers. According to IDFC FIRST Bank, the services surplus has widened to $181 billion in year to date 2025–26 from $116 billion a year earlier, with services export growth of 10.6% outpacing merchandise trade. Robust remittance inflows have further offset the merchandise gap.

As a result, most economists continue to see the current account deficit contained. Emkay pegs the current account deficit at 1.1% of gross domestic product in 2025–26 and 1.2% in 2026–27. QuantEco Research expects a deficit of 1.3% in 2025–26, moderating to 1.2% in 2026–27. IDFC FIRST Bank projects a narrower 1.0% in 2025–26, noting that excluding net gems and jewellery imports, the current account would be in surplus.