Higher imports push India’s trade deficit to $34.68 billion in January

New Delhi: India’s merchandise trade deficit widened in January as imports surged, weeks before a delegation is expected to depart for the US for final discussions, following the two nations' agreement on an interim trade pact to reduce tariffs from 50%.

The gap between imports and exports swelled to $34.68 billion from $25.04 billion in December and $23 billion a year earlier, according to the provisional data released by the ministry of commerce and industry on Monday. The deficit is the highest in the current fiscal so far after the record $41.68 billion in October 2025.

Merchandise exports declined to $36.56 billion in January from $38.51 billion in December, though they were marginally higher than $36.43 billion a year earlier. Imports surged to $71.24 billion from $63.55 billion in December 2025 and $59.42 billion in January 2025.

Imports of petroleum and crude products ($13.39 billion), gold ($12.07 billion), electronics goods ($10.19 billion) and machinery ($5.41 billion) contributed to the higher trade deficit during the month.

Merchandise exports in January were driven by electronic goods, meat, dairy and poultry products, drugs and pharmaceuticals, engineering goods and marine products. Among the top destinations for India’s goods exports, the US ranks first, followed by the UAE, China, the Netherlands and the UK. On the import side, China remains India’s largest sourcing partner, followed by the UAE, Russia and the US.

India-US talks

Exports to the US declined to $6.58 billion in January from $7.01 billion in December, indicating some moderation despite overall resilience under higher tariffs, even as exporters faced pricing and margin pressures. However, cumulative shipments during April–January rose 5.8% year-on-year to $72.46 billion, reflecting steady growth despite tariff pressures.

Early in February, the US decided to lower the reciprocal tariff on India to 18% from 25% after the two nations agreed to an interim trade pact. President Donald Trump also removed the additional 25% levy on the condition that India stops buying Russian oil.

“An Indian delegation led by the chief negotiator will visit the US next week to carry forward the discussions. Work is currently underway to convert the joint understanding into legally binding language," said commerce secretary Rajesh Agrawal. "While it is difficult to specify a deadline for signing the agreement, efforts are ongoing and there is a possibility that the proposed mini deal could be finalised by March.”

Both sides are working to resolve outstanding issues and ensure that the interim arrangement lays the groundwork for a broader and more comprehensive trade agreement, he said.

Bilateral goods trade between India and the US stood at $116.39 billion during April–January, with India recording a trade surplus of $28.53 billion. This compares with bilateral trade of $112.51 billion in the corresponding period of the previous fiscal, when the trade surplus stood at $27.41 billion.

“Until disaggregated data on exports to the US is available, it is difficult to draw a firm conclusion. However, the month-on-month decline in shipments to the US may not be very significant, as cumulative exports continue to show growth,” said Abhijit Das, an international trade expert and former head of the Centre for WTO Studies, New Delhi.

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), said the latest trade data for January highlights the pronounced impact of US tariffs on export performance, while also hinting at early signs of market diversification.

“With Washington expected to cut reciprocal tariffs on most Indian goods from 50% to 18% this week, we anticipate a swift recovery in shipments,” he said.

China dependence

Meanwhile, bilateral trade between India and China also increased last month, with imports rising sharply alongside exports, reflecting continued dependence on Chinese intermediate and electronic goods.

India's goods shipments to China moderated to $1.63 billion in January from $2.05 billion in December and $2.20 billion in November.

India's bilateral merchandise trade with China reached $124.06 billion in the April-January period of the current fiscal, with a trade deficit of $92.30 billion. Exports to China climbed to $15.88 billion, up from $11.48 billion a year earlier.

India’s total merchandise exports during April–January 2026 (FY26) rose to $366.63 billion, up from $358.91 billion a year ago. Imports increased to $649.86 billion during the first 10 months of the current fiscal, leading to a goods trade deficit of $283.23 billion.

“India’s overall exports during the first ten months of the current fiscal year (April–January) have reached $720 billion, marking a 6.15% increase — or nearly $40 billion more — compared to $679 billion recorded in the same period last year. In January alone, total exports stood at $80.45 billion, reflecting a robust 13.17% year-on-year growth,” said Agrawal.

Sustained growth in overall exports, despite global economic uncertainties and trade disruptions, reflects the resilience of India’s merchandise and services sectors, as well as the expanding competitiveness of Indian exporters in key markets, he said.

Meanwhile, the combined merchandise and services trade surplus narrowed year-on-year in January, even as services exports remained robust. Total exports (goods and services) rose to $80.45 billion during the month from $71.09 billion a year earlier, while total imports jumped to $90.83 billion from $76.48 billion a year earlier. Services exports rose to $43.90 billion from $34.75 billion a year ago, while services imports increased to $19.60 billion from $16.71 billion a year ago.

Sector-wise performance

Engineering goods continued to anchor India’s export basket during April–January FY26, rising 4.52% to $101.13 billion from $96.76 billion in the same period last year. Electronic goods shipments recorded a sharp 30.35% growth, increasing to $39.38 billion from $30.21 billion, while drugs and pharmaceuticals rose 5.84% to $25.73 billion from $24.31 billion, reflecting steady demand in key markets.

In contrast, petroleum product exports declined 13.41% to $45.69 billion from $52.77 billion in the corresponding period last year.

“The fall in petroleum product exports is mainly linked to changes in crude imports and global oil prices,” Das said.

Among traditional segments, ready-made garments of all textiles rose marginally to $13.13 billion from $12.92 billion, while marine product exports jumped to $7.17 billion from $6.22 billion. However, rice exports moderated to $9.34 billion from $10.10 billion a year earlier. Exports of gems and jewellery also declined to $23.53 billion from $24.39 billion in the corresponding period.

On the import side, petroleum crude and products remained the largest item, though their imports contracted to $148.82 billion during April–January FY26 from $154.98 billion in the corresponding period last year. Electronic goods imports surged to $94.84 billion from $81.66 billion, while gold imports rose sharply to $61.46 billion from $51.19 billion.

Machinery imports increased to $50.75 billion from $44.43 billion, and non-ferrous metals climbed to $24.21 billion from $20.89 billion, indicating sustained demand for industrial inputs.

Volatile gold imports

Gold imports have emerged as a central driver of volatility in India’s trade deficit, with recent data indicating that rising global prices — rather than higher consumption volumes — are inflating the import bill.

During April–December FY26, gold imports stood at $49.39 billion, even though physical imports were 474.99 tonnes. In April-January, total gold imports stood at $61.46 billion.

The gold import bill in January was marginally higher than the revised November 2024 figure, underlining the continued pressure from bullion purchases.

The outsized role of gold in shaping India’s trade deficit became particularly visible in late 2024, when the Union Ministry of Commerce and Industry revised November gold import data downward by $5 billion to $9.84 billion from an initial estimate of $14.8 billion.