TRADE DEFICIT WIDENS IN JUN-26 AS EXPORTS FALTER

TRADE DEFICIT WIDENS IN JUN-26 AS EXPORTS FALTER

If May 2026 was a month in which exports flattered, June was a return to reality. Goods exports faltered as supply chain constraints remained acute. Global demand has taken a hit, both for goods and services and Trump’s skewed tariff policies are not really helping India. Here is a quick snapshot of the trade performance for the month of June 2026, with focus on merchandise goods.

The key merchandise export drivers for June 2026 were Cereals (+244.3%), Handicrafts (+59.7%), Meat, Dairy, Poultry (+54.6%), Iron Ore (+50.0%), Gems & Jewellery (+34.6%), Plastics (+21.2%), and Engineering Goods (+20.7%).

The import restrictors for the month of June 2026 were Project Goods (-85.4%), Silver (-73.6%), Pearls & Semi-Precious Stones (-16.8%), Chemical Products (-12.1%), and Vegetable Oil (-2.6%).

The top 5 export destinations in June 2026 by change in absolute value were South Africa (+114.0%), Singapore (+48.9%), People’s Republic of China (+31.5%), Oman (+189.6%), and Malaysia (+99.2%).

The top 5 import sources in June 2026 by change in absolute value were Russia (+85.0%), People’s Republic of China (+40.3%), United States (+33.9%), United Arab Emirates (+24.6%), and Taiwan (+135.0%).

June 2026 was a month in which the exports struggled to keep pace with the growth in imports, resulting in a widening of the merchandise trade deficit to beyond $30 billion. The impact may be sharper in July as the full impact of resumption of hostilities in the Middle East and West Asia will also be visible in trade numbers.

JUN-26 MERCHANDISE TRADE DEFICIT WIDENS 7.8% TO $30.4 BILLION

Exports in June were over 10% lower than May at $40.41 billion, and so the goods trade deficit was 7.8% higher at $30.43 billion. Imports continued to remain sticky. Here is a quick snapshot of the merchandise trade details for June 2026.

What are the quick takeaways from a reading of the trade data for June 2026?

Merchandise trade has widened by 59.3% on yoy basis as the exports have failed to keep pace with the spike in imports, amid the ongoing Gulf War.

For June 2026, even the services trade surplus was lower -6.8% yoy at $15.1 billion. As a result, the combined trade deficit of goods and services for June 2026 widened more than five-fold to $(15.3) billion.

A key metrics is how much of goods deficit is offset by services surplus. For June 2026, this offset factors is just about 49.7%; compared to 62.7% in May 2026. There has been a sharp fall in the ability of services to offset goods deficit.

The deficit is being driven less by volumes and more by price. India needs to seriously rethink its strategy on oil and revert to discounted oil from Russia in a big way.

FY27 OVERALL TRADE DEFICIT HINTS AT HIGHER CAD IN FY27

For 3 months of FY27, the overall deficit is up 79.6% amid supply chain challenges.

Here are quick takeaways for investors from overall trade data for FY27.

Firstly, the FY27 data just contains 3 months of data, and credible signals for the full year starts to appear only after the fifth or sixth month. Prima facie, it does look like the overall deficit could widen sharply in FY27, compared to FY26.

In FY26, the current account deficit (CAD) was restrained at 0.6% of GDP. However, FY27 is likely to feel the pressure of trade constraints and of imported inflation, especially in oil, fertilizers, and gold.

In the first 3 months of FY27, India has already achieved total goods and services trade of $502.9 billion. That is the best in recent memory; and it positions India in a sweet spot to achieve the target of $2 trillion overall trade in FY27.

Where has the import pressure come from; in terms of size and spike? In terms of spike, imports of fertilizes are up 192.7% yoy in Q1FY27 at $3.84 billion. In terms of size, crude oil import bill is up 40.1% yoy at $60.62 billion in the first quarter.

Clearly, FY27 is going to be a lot more complicated compared to FY26, as some of the biggest headers of imports; like crude oil, machinery, and electronic good are seeing a sharp spike. Combined with the impact of a weak rupee and imported inflation, the challenges promise to be tougher in FY27!