India’s merchandise and services exports rose 4.22 percent to touch $860.09 billion in the financial year 2025-26, according to the latest trade data released this week. The growth, while positive, was outpaced by a sharper 6.47 percent rise in imports to roughly $970 billion, pushing the combined merchandise-and-services trade deficit to $119.30 billion for the year — up from $94.66 billion in 2024-25.
Where the Growth Came From
Mineral fuels, oils and distillation products remained India’s single largest export category, accounting for 17 percent of total shipments, followed by electrical and electronic equipment at 9 percent and machinery, nuclear reactors and boilers at 7 percent. Pearls, precious and semi-precious stones and jewellery held steady at 7 percent of exports, while pharmaceutical products, vehicles and parts, and organic chemicals each contributed around 5 percent. The relative stability of this export basket suggests India’s trade growth in FY26 was driven more by volume gains in established categories than by breakout performance in any single new sector.
Monthly Momentum Picking Up
The most recent monthly readings point to some acceleration: exports rose to $45.20 billion in May 2026, up from $43.56 billion in April, while imports climbed to $73.41 billion in May from $71.94 billion in April. The pace of import growth outstripping export growth on a monthly basis mirrors the full-year trend and is likely to keep the trade deficit in focus for policymakers at the Commerce Ministry and Reserve Bank of India alike, given its implications for the current account and rupee stability.
The Forecast Ahead
Export-Import Bank of India projections point to merchandise exports of $108.1 billion for the second quarter of FY2026-27 covering July through September, with non-oil exports forecast at $92.1 billion for the same period. Trade economists note that meeting this forecast will depend heavily on how ongoing tariff negotiations with the United States and the newly concluded India-EU trade agreement translate into actual order flow over the coming two quarters, rather than simply remaining commitments on paper.
Policy and Market Reaction
Commerce Ministry officials have pointed to the widening deficit as a reason to accelerate market diversification efforts, noting that dependence on a narrow set of trading partners and product categories leaves India’s export performance exposed to demand shocks in any single market. Industry bodies representing engineering exporters and pharmaceutical manufacturers have called for expanded production-linked incentive coverage to help exporters compete on cost, particularly as several Southeast Asian competitors continue to undercut Indian pricing in similar product categories. Currency analysts have flagged the wider deficit as a modest headwind for the rupee, though they note that resilient services exports and steady remittance inflows have so far cushioned the impact on the broader current account.
What to Watch Next
With the Q2 FY26-27 export forecast now in play, the coming quarter’s trade data will be an important test of whether India’s export engine can regain the momentum needed to narrow the gap with import growth. Analysts will also be watching closely for the practical effects of the India-EU FTA and the emerging US interim trade arrangement, both of which carry the potential to meaningfully shift the composition and pace of India’s outbound trade over the next several quarters.
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