TRADE DEFICIT IN JUL-26 GETS AN IMPORTS JOLT

TRADE DEFICIT IN JUL-26 GETS AN IMPORTS JOLT

The good news is that the unrest in the Middle East has not impacted Indian exports as there have been alternate markets and trade routes available. What widened sharply is the import bill, as the oil bill went ups steeply. Here is a quick snapshot of the trade performance for the month of July 2026, with focus on merchandise goods.

The key merchandise export drivers for July 2026 were Iron Ore (+78.4%), Petroleum Products (+67.6%), Electronic Goods (+57.4%), Meat, Dairy, Poultry Products (+40.8%), Cashew (+25.1%), Marine Products (+17.8%), and Engineering Goods (+17.7%).

The import restrictors for the month of July 2026 were Silver (-66.1%), Sulphur & Iron Pyrites (-47.0%), Newsprint (-26.3%), Pulp & Waste Paper (-22.6%), and Pharmaceutical Products (-4.0%).

The top 5 export destinations in July 2026 by change in absolute value were United States (+12.9%), People’s Republic of China (+64.6%), Singapore (+83.7%), Kenya (+151.4%), and Malaysia (+73.0%).

The top 5 import sources in July 2026 by change in absolute value were Russia (+83.9%), People’s Republic of China (+34.4%), Oman (+150.4%), Taiwan (+111.3%), and United States (+18.1%).

July 2026 was a month in which the exports expanded, but the imports also grew sharply, resulting in a widening of the merchandise trade deficit to beyond $31.98 billion. Much of the increase in trade deficit can be attributed to the spike in the crude basket in the month of July; due to resumption of hostilities.

JUL-26 MERCHANDISE TRADE DEFICIT WIDENS TO $31.98 BILLION

Exports in July were 9.5% higher than June at $44.24 billion. However, with a 17.5% spike in imports, the merchandise trade deficit also widened in dollar terms. Imports, especially the oil basket, continued to remain sticky. Here is a quick snapshot of the merchandise trade details for July 2026.

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

Merchandise trade has widened by 14.7% on yoy basis as the import bill has sharply risen to $76.22 billion in July 2026. The spike in imports has largely come from a spike in oil prices, although volumes have not really risen.

For July 2026, even the services trade surplus grew at just about 3.1% yoy at $16.95 billion. As a result, the combined trade deficit of goods and services for July 2026 widened sharply to $(15.03) billion.

A key metrics is how much of goods deficit is offset by services surplus. For July 2026, this offset factors is only marginally better at 53.0%, compared to 49.7% in June, but lower than the 62.7% in May 2026. Services are less effective in offset.

The deficit is being driven less by volumes and more by price. The big question is; what happens if sanctions are imposed on Russia and flow of crude through the Straits of Hormuz and Bab-al-Mandeb continue to remain restricted.

FY27 OVERALL TRADE DEFICIT HINTS AT HIGHER CAD IN FY27

For 4 months of FY27, the overall deficit is up 52.9% amid supply chain challenges.

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

Based on the Q1 current account deficit (CAD) data, it does show signs of pressure, although it is not too pronounced. Early data does suggest a sharply higher overall deficit in FY27, compared to FY26.

For the first 4 months of FY27, the services trade surplus at $69.17 billion has offset almost 58.3% of the goods trade deficit of $(118) billion. However, services exports at $142.64 billion are now 82.1% of goods exports at $173.78 billion.

Where has the import pressure come from; in terms of value spike? Heavyweight segments like Electronic goods up 46.0% and Petroleum imports up 17.6% were the import drivers. Project goods and fertilizers showed high percentage growth.

FY27 is going to be a lot more complicated compared to FY26, as some of the biggest headers of imports; like crude oil, electronic goods, and fertilizers are seeing a sharp spike. Imported inflation remains a major challenge, so the focus will remain on rupee value and the monetary policy stance of the RBI MPC.