India's merchandise trade deficit widened to $30.4 billion in June as imports rose 31% to $70.8 billion. While exports grew by 15.5%, a sharp slowdown in petroleum shipments pressured overall trade figures. This trend may increase the current account deficit for the fiscal year, with analysts pointing to rising commodity import volumes as a key factor to monitor.
India’s merchandise exports rose to $40.4 billion in June, reflecting a growth of 15.5% compared to the same month last year. However, this pace was slower than the 18% growth observed in May. The primary cause for this cooling was a significant drop in petroleum product exports, which grew by only 8.9% in June, a sharp decline from the 55.1% growth recorded in the previous month. This change is linked to fluctuations in global crude oil prices, which have impacted the total value of oil-related exports.
Resilience in Non-Oil Sectors
Despite the pressure on petroleum exports, other segments of the economy showed stability. Exports excluding oil and precious commodities grew by 15.3%, showing an improvement over the 12.3% growth seen in May. Key sectors driving this performance included engineering goods, electronics, chemicals, and pharmaceuticals. Additionally, the gems and jewellery industry saw a notable recovery, growing 34.6% after a period of lower activity. Agricultural shipments, including rice, meat, and marine products, also continued to provide steady support to the export basket.
Import Growth Outpaces Exports
While exports grew, imports increased at a much faster rate of 31% to reach $70.8 billion in June. This surge was widespread, with significant contributions from electronic goods, machinery, transport equipment, and coal. Fertilizer imports saw a sharp rise, more than tripling due to smoother trade routes. Although lower crude oil prices helped manage the value of oil imports, the overall volume of goods entering the country remained high, leading to a merchandise trade deficit of $30.4 billion, up from $28.2 billion in May and $19.1 billion in the same month last year.
Impact on Current Account Deficit
This widening gap in goods trade, combined with a slight narrowing in the services trade surplus, has put pressure on the country's balance of payments. Crisil has projected the current account deficit to rise to 1.5% of GDP for fiscal year 2027, compared to the 0.6% projection for the previous fiscal year. The agency attributes this primarily to elevated commodity prices and the persistent goods trade gap. Moving forward, investors may track Brent crude oil price trends and global trade developments, as these remain critical factors that could influence the country’s import bill and overall economic stability for the remainder of the fiscal year.