India’s Trade Deficit Looks Stable So Far, But FY26 CAD Risks Are Building

If you only look at the headline number, India’s trade deficit for FY26 so far looks… fine. Up to November 2025, the overall trade deficit is just 2.33% higher than last year for the same period.

But that comfort can be misleading. Last year, the deficit was meaningfully trimmed in the final months. This year, tariff pressure is only beginning to show from October. If an India–US trade deal doesn’t happen quickly, the next few months could look very different.

And that’s where the worry begins: the Current Account Deficit (CAD) may look under control in H1, but H2 could test it.

The Trade Snapshot So Far (FY26 Apr–Nov)

For the first 8 months of FY26 (April to November 2025), India’s overall trade activity is strong. Total trade volume has already touched $1.21 trillion. If this pace holds, total trade could cross $1.80 trillion by March 2026.

But the real story is not total trade volume. It’s what’s happening inside it: goods are under pressure, services are cushioning, and tariffs may widen the gap further in H2.

FY26 Trade Data (Apr–Nov): The Numbers

What These Three Buckets Mean

• Merchandise trade: Goods exports and imports. India typically runs a deficit here.
• Services trade: Services exports and imports. India runs a large surplus here.
• Overall trade deficit: The combined net impact of goods and services trade.

So yes, the overall deficit looks stable. But the goods deficit is expanding faster, and services must keep offsetting it.

Merchandise Trade Is the Pressure Point

For FY26 (Apr–Nov), the merchandise trade deficit stands at $223.14 billion, which is 9.74% higher year-on-year. This matters because goods deficit is where India’s external balance usually feels stress first.

Two things make this tough to fix quickly:

• Export pressure from tariffs: Goods exports are more vulnerable to trade barriers and pricing pressure.
• Inelastic imports: India’s imports of oil, gold, and electronic components do not fall easily, even when global conditions turn unfavourable.

So even if exports hold up modestly, imports can keep the deficit wide. That’s the setup that can hurt CAD later.

Services Surplus Is India’s Cushion

The good news is services trade is doing its job. As of November 2025, the services trade surplus is $134.13 billion, up 15.28% year-on-year.

Unlike goods, services exports have stayed resilient. IT exports and GCC (Global Capability Centre) revenues have grown during this period. In other words, tariffs may be hitting goods, but services are still bringing in dollars.

This services engine is the reason the overall trade deficit hasn’t blown out yet.

How Much Does Services Offset the Goods Deficit?

Think of the services surplus as a buffer that absorbs part of the merchandise deficit.

In FY26 so far, the offset ratio (services surplus as a share of the goods deficit) is 60.1%, up from 57.2% last year. That’s an improvement.

Another positive sign: the service export ratio is higher this year at 92.5%, compared to 87.3% in FY25.

But here’s the catch: even a strong services surplus can struggle if the merchandise deficit widens sharply in H2.

Why Tariffs Could Change the H2FY26 Story

The overall trade deficit for Apr–Nov is $89.01 billion versus $86.98 billion last year. Just a small change, and that’s why the headline looks calm.

But the timing matters. The full impact of tariffs started showing only from October 2025. If the India–US trade deal remains elusive, the pressure can increase in the remaining months of FY26.

And remember: last year’s deficit was compressed in the later months. If that doesn’t happen this year, the year-end numbers could surprise.

So What Happens to Current Account Deficit (CAD)?

The Current Account Deficit (CAD) is the broader measure of India’s external gap. It becomes a concern when the country’s outflows (imports and payments) consistently exceed inflows (exports and receipts).

For FY26, the H1 CAD picture looks manageable. The risk builds if one or both of these happen in H2:

• The goods deficit widens faster than services surplus can offset.
• NRI flows slow down if the rupee weakens. A weak rupee can change remittance behaviour and portfolio flow dynamics.

If that gap widens meaningfully in the second half, CAD could move from “under control” to “something to watch closely.”

Key Takeaways

• FY26 trade deficit up to Nov 2025 is only 2.33% higher YoY, but this can be misleading.
• Merchandise deficit is at $223.14 bn, up 9.74% YoY, with tariffs and inelastic imports adding pressure.
• Services surplus is strong at $134.13 bn, up 15.28% YoY, led by IT and GCC strength.
• Services offset ratio improved to 60.1%, but may not be enough if goods deficit widens in H2.
• CAD risk rises if tariff effects deepen and if NRI flows weaken alongside a soft rupee.

Disclaimer: This article is for informational and educational purposes only and does not constitute investment or policy advice.