GOODS EXPORTS FLATTER IN MAY-26, DESPITE GULF UNREST

GOODS EXPORTS FLATTER IN MAY-26, DESPITE GULF UNREST

In a sense, it was a surprise of sorts. Despite the trouble in the Middle East, the exports grew, with exports to the Middle East almost intact. However, the trade data also showed pressure of higher imports, which was largely price driven amid higher gold and oil prices. Higher freight and insurance costs also played a part. Here are some quick takeaways from the trade data for May 2026.

The key merchandise export drivers for May 2026 were Cereals (+262.7%), Petroleum Products (+54.9%), Meat, Dairy, Poultry (+42.5%), Oil Meals (+24.7%), Engineering Goods (+24.5%), Handicrafts (+23.9%), and Plastics (+21.8%).

The import restrictors were Silver (-86.7%), Project Goods (-64.1%), Chemical Products (-63.6%), Pearls & Semi-Precious Stones (-26.5%), Iron & Steel (-12.5%), Pulp & Waster Paper (-9.9%), and Machine Tools (-8.1%).

The top 5 export destinations in May 2026 by change in absolute value were Singapore (+69.0%), South Africa (+116.2%), Tanzania (+186.9%), Italy (+87.5%), and Sri Lanka (+150.3%).

The top 5 import sources in May 2026 by change in absolute value were Russia (+63.5%), People’s Republic of China (+23.4%), United States (+54.4%), Oman (+305.7%), and Brazil (+358.8%).

The good news is that India has adjusted to the supply chain constraints imposed due to Middle East supplies, by procuring alternate supplies from Africa, North America, and Latin America; apart from old trade partner Russia.

MAY-26 MERCHANDISE TRADE DEFICIT WIDENS TO $28.2 BILLION

Despite the surge in exports to $45.2 billion, goods trade deficit was still elevated at $28.2%, due to a sharp surge in imports. Here is the overall trade picture; across merchandise goods and intangible services.

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

Merchandise trade has risen by 19.6% on yoy basis as the price rise has put pressure on Indian imports of oil, gold, fertilizers, electronics etc.

Despite a robust services surplus of $17.7 billion, the overall trade deficit has gone up by 54.6% to $10.51 billion. This figure directly impacts the CAD.

A key metrics is how much of goods deficit is offset by services surplus. For May 2026, this offset factors is just about 62.7%, which explains the overall deficit.

While trade volumes are certainly higher on a yoy basis in May 2026, it has come at a higher price in the form of a steeper overall deficit.

FY27 OVERALL TRADE DEFICIT HINTS AT HIGHER CAD IN FY27

For 2 months of FY27, the overall deficit is up 12.1% amid rising supply chain issues.

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

Firstly, it must be remembered that the FY27 data just contains 2 months of data, and credible signals for the full year starts to appear only after the fourth or fifth month. However, early indications are that the overall deficit could be wider this as compared to the previous year.

In FY26, the current account deficit came in at just 0.6% of GDP, which is extremely reasonable. However, with higher impact of inflation and higher commodity prices, the CAD is likely to widen, even if the trade volumes do not go up substantially. That will be the challenge in FY27.

In the first 2 months of FY27, India has already achieved total goods and services trade of $345.5 billion. That is the highest in recent memory. More importantly, it positions India perfectly to achieve the target of $2 trillion over trade in FY27.

A quick word on 2 key items in the goods import basket. Crude imports at $22.7 billion was a good 53.8% higher on yoy basis due to the price effect. Also, electronic goods imports at $12.3 billion was 35.5% higher on yoy basis.

There is a piece of good and bad news. The good news is that India’s overall trade has shown resilience despite the unrest in the Middle East. The bad news is that even if the war ends, the supply chains will take a long time to normalize. That is something Indian trade will learn to live with in FY27.