India’s FY26 Trade Gap Widens as Import Momentum Outpaces Patchy Export Gains

India’s merchandise trade profile in 2025–26 was defined less by export strength and more by the composition of import demand, with the gap widening even as headline export growth held marginally positive.

Merchandise exports rose just 0.93% to $441.8 billion in FY26, a slowdown that reflects weak performance across traditional sectors even as newer segments gained traction. In contrast, imports grew 7.46% to $775.0 billion, pushing the merchandise trade deficit sharply higher to $333.2 billion from $283.5 billion a year earlier, according to official data.

Imports from China rose to $131.63 billion, reinforcing its position as India’s largest import source. Meanwhile, imports from the United States also increased, contributing to a narrowing of India’s bilateral trade surplus with its largest export market.

On the export side, the United States remained the top destination, with shipments rising marginally to $87.31 billion during 2025–26. China emerged as the fastest-growing major market, with exports increasing 36.7% to $19.48 billion, reflecting diversification efforts.

However, merchandise trade deficit narrowed sharply to $20.67 billion in March, offering relief after a volatile start to 2026. The improvement came as exports recovered to $38.92 billion from $36.61 billion in February, while imports declined to $59.59 billion from $63.71 billion.

This compression was notable given simultaneous disruptions from the Iran conflict, which sharply curtailed trade with the West Asia and inflated freight and energy costs.

The narrowing in the deficit in March was aided by a visible correction in commodity-driven imports. Petroleum imports declined over 35% year-on-year, while gold imports fell more than 31%, reversing the surge seen in previous months.

At the same time, non-oil, non-gems imports remained elevated at $41.87 billion, compared with $37.99 billion a year earlier, reflecting steady domestic demand.

Export performance in March was supported by a handful of sectors. Engineering goods exports rose to $10.94 billion, while petroleum product shipments increased to $5.18 billion. Mineral exports, including mica and processed ores, also registered double-digit growth, while cereals posted a sharp rise.

However, this sectoral strength was offset by geographic disruptions. Exports to the Middle East fell by $3.5 billion in March, dropping to $2.5 billion from a typical monthly average of around $6 billion. The decline was particularly visible in shipments to the United Arab Emirates and Saudi Arabia, which recorded steep contractions.