ICICI Bank Global Markets projects India’s goods trade deficit to widen to USD 300 billion (≈7% of GDP) in FY26, up from $287 billion in FY25. Weak recovery in exports beyond the U.S. and buoyant domestic demand driving imports are cited as primary factors
📉 4 Key Drivers Behind the Deficit Surge
1️⃣ Weak non-U.S. export demand
Exports to non-U.S. markets have declined by 5.6% in June, with early FY26 export growth sluggish outside the U.S., despite 24% YoY growth in shipments to America
2️⃣ Strong domestic consumption fueling imports
Robust demand for energy, electronics, and capital goods has kept import volumes high. Import growth outpaced exports even as oil prices remained moderate
3️⃣ Trade policy uncertainty
Geopolitical tensions, ongoing tariffs, and global trade disruptions threaten to stifle export recovery, unlike during early U.S.–China trade truce periods The Economic Times.
4️⃣ Services & remittances partially offset
While services exports and remittance inflows are expected to stabilise the current account deficit at ~$30 billion (0.7% of GDP), they won’t fully compensate for the widening goods deficit
🔭 What to Monitor Next
- June numbers: Trade deficit narrowed to $18.8 billion in June, a four-month low, driven by improved non-oil trade
- PLI schemes & FTAs: India is expanding Production Linked Incentives and trade agreements to support exports.
- Global demand trends: Recovery in non-U.S. markets—Europe, Asia, Africa—will be critical to temper the goods deficit.
- Import moderation: Slowing capital goods and energy import growth could help narrow the gap.
✅ Bottom Line
India’s goods trade deficit is expected to climb to USD 300 billion in FY26, driven by weak non-U.S. export performance and firm import growth. While services and remittances aim to cushion the impact, balancing trade will depend on policy support, export diversification, and controlling import growth.
