India's merchandise exports jump 18% in May; trade deficit widens to $28.21 billion

India’s merchandise exports climbed 18% in May, led by outbound shipments of engineering goods, petroleum products and electronics goods.

Merchandise exports were estimated at $45.20 billion last month, up from $38.30 billion a year earlier, according to provisional data released by the ministry of commerce and industry on Monday.

Imports climbed 20.6% to $73.41 billion from $60.86 billion. The trade deficit widened to $28.21 billion from $22.56 billion in May last year.

Services exports rose to $36.76 billion in May from $32.46 billion a year earlier, while services imports rose to $19.06 billion from $16.70 billion.

The overall trade deficit, including services, widened to $10.51 billion in May from $6.79 billion a year ago. Total exports, including merchandise and services, rose to $81.96 billion from $70.76 billion, while total imports increased to $92.47 billion from $77.55 billion.

"Indian exports showed a good degree of resilience… It does appear that exporters have adjusted to the current global economic order and managed to hold on to their position three months into the war. Imports trended higher due to higher crude prices which thus kept the deficit higher," said Madan Sabnavis, chief economist at Bank of Baroda.

Top exports

Exports of engineering goods rose 24.5% to $12.3 billion in May. Petroleum product exports climbed 54.9% to $8.4 billion and outbound shipments of electronic goods increased 11.6% to $5.1 billion.

Among imports, petroleum, crude and products surged 53.8% to $22.67 billion, electronics goods increased 35.5% to $12.1 billion and electrical and non-electrical machinery rose 11.6% to 5.58 billion. Gold imports climbed 34% to $3.4 billion last month, while silver imports fell 87% to $75.6 million.

The provisional data was released by the ministry after the US and Iran agreed to a peace deal that would ease tensions around the Strait of Hormuz, a key route for energy shipments and global trade. The deal is expected to improve India’s trade and energy outlook, with exporters and industry groups expecting lower freight costs, steadier supply chains and reduced volatility in Gulf-linked markets.

The US-Iran war had led to a blockade of the Strait of Hormuz, curbing the flow of goods to ports in the Persian Gulf and prompting exporters to opt for alternative trade routes, often at higher costs. India's exporters, particularly smaller businesses that account for 48% of the country’s exports, have faced rising freight costs and cargo delays across the Gulf region.

The Reserve Bank of India noted on 5 June that the global economy has been shaped by heightened uncertainty, disruptions to key trade routes and supply chains, increased market volatility, and cautious business sentiment over the past few months.

Upside risks

The surge in energy prices and persistent trade policy uncertainties continue to pose upside risks to India’s current account deficit in FY27, while a services trade surplus and inward remittances are expected to provide some comfort, the RBI said.

It said merchandise exports recorded strong growth in April, notwithstanding elevated freight and insurance costs. Services exports also held up well, reflecting sustained demand despite concerns about AI.

Merchandise exports had risen to $43.56 billion in April from $38.28 billion a year earlier.

Imports climbed 10% to $71.94 billion in April from $65.38 billion. The trade deficit widened to $28.38 billion in April from $27.1 billion a year ago.

India has set a target of more than doubling total exports to $2 trillion by FY31 – $1 trillion each in merchandise shipments and services. The government has asked officials to sharpen focus on micro, small and medium enterprises, farm products, certification and promotion of ‘Brand India.’

The central bank said weak global demand and high logistics costs are headwinds for merchandise exports. Services exports, though, are expected to sustain their momentum as demand for Indian services remains healthy.

Measures by the government, including support to small businesses and export sectors, efforts to ramp up domestic gas and crude production, encouraging use of domestically produced alternatives to imported inputs and diversification of critical imports, should help cope up with the external shocks, the RBI said.

Non-petroleum exports increased to $36.78 billion in May from $32.87 billion a year ago, while non-petroleum imports rose to $50.73 billion from $46.11 billion. Non-petroleum and non-gems & jewellery exports increased to $34.24 billion from $30.49 billion, while corresponding imports rose to $46.09 billion from $41.44 billion.

The commerce ministry said services exports are estimated to have grown 13% to $73.79 billion during April-May over the corresponding period of the previous year.