Trade deals and softer oil prices may ease India's deficit

India’s record trade deficit of $333.2 billion in FY26 is expected to ease in the coming months, supported by new trade agreements and a likely correction in global oil prices, according to a report by Bank of Baroda.

The report projects India’s current account deficit at 1.5 to 2 percent of GDP in FY27, though it warns that ongoing geopolitical tensions could pose risks. While merchandise exports saw modest growth of 0.9 percent to $441.7 billion, imports rose sharply by 7.5 percent to $775 billion, widening the trade gap.

Higher imports of gold and silver remained a major pressure point, with gold imports rising 25 percent and silver imports surging 151 percent due to strong domestic demand and higher prices. Imports of electronic goods also crossed $100 billion, reflecting robust consumption and industrial demand.

Despite a 58 percent surge in crude oil prices linked to disruptions around the Strait of Hormuz, India’s overall oil import bill declined by 6.5 percent over the year, helped by earlier price stability.

On the export side, electronic goods performed strongly with over 24 percent growth, while sectors like engineering goods and pharmaceuticals saw slower expansion.

The report noted that India’s external sector remains stable and is likely to improve as geopolitical tensions ease and trade agreements take effect. However, it cautioned that prolonged disruptions and rising commodity prices could continue to put pressure on the country’s trade balance.