India's merchandise trade deficit widened to $28.26 billion in May 2026 as total imports climbed to $73.40 billion. While exports showed resilience at $45.14 billion, higher import demand for oil and other goods put pressure on the trade balance. Investors should track how this gap influences the rupee and current account stability.
Detailed Coverage
The Reserve Bank of India’s latest data for May 2026 highlights a complex start to the new fiscal year for the Indian economy. Merchandise exports performed steadily, reaching $45.14 billion in May, up from $43.72 billion in April. A notable contributor to this growth was the non-oil export segment, which increased to $36.74 billion, reflecting demand in key global markets.
However, this export performance was offset by a rise in the import bill. Merchandise imports climbed to $73.40 billion in May from $71.93 billion the previous month. This surge was largely driven by higher oil imports, which continue to be a significant factor in India’s total import expenditure. As a result, the merchandise trade deficit edged up to $28.26 billion, continuing a trend of pressure on the country's external trade balance.
FDI and Portfolio Flows
The investment landscape showed a clear divide between long-term and short-term capital. Foreign Direct Investment (FDI) remained a bright spot, with net inflows totaling $6.5 billion for April and May 2026. This is a sharp increase compared to the $2.47 billion recorded in the same two-month period last year. The gross FDI figure of $13.77 billion suggests that international companies continue to see long-term opportunities within the Indian manufacturing and services sectors.
Conversely, portfolio investments—which represent money flowing into stocks and bonds—faced a different reality. The country saw net portfolio outflows of $12 billion during the same two-month period. When combined with FDI, the overall foreign investment trend resulted in a net outflow of $5.5 billion. While FDI provides more stable, long-term capital, significant volatility in portfolio investments is something market participants often watch closely, as it can influence equity market sentiment and currency valuation.
External Stability Factors
To manage these pressures, the economy continues to rely on stable financing channels. Non-resident Indian (NRI) deposits reached a substantial $165.96 billion by May 2026, with an inflow of $1.33 billion in the first two months of the fiscal year. These deposits act as a consistent source of foreign exchange, helping to balance the impact of the trade deficit.
Moving forward, the primary monitorable for investors remains the balance between export growth and the import bill. If import costs remain elevated due to oil prices or other global factors, the trade deficit could continue to exert pressure on the rupee. Investors may also track whether the strong momentum in FDI continues in subsequent months to offset potential volatility in portfolio flows, as these capital movements directly impact the stability of the external sector.