FY26 Trade Deficit: What the DGFT Data Is Really Saying

India’s latest trade data shows a widening trade deficit in FY26 so far. However, a closer look at the numbers suggests that the situation remains under control. Strong services exports continue to cushion the impact of a higher merchandise deficit, keeping overall external stability intact.

The Directorate General of Foreign Trade (DGFT) released trade data for December 2025 and for the first nine months of FY26. While the merchandise trade deficit has increased year-on-year, the overall trade deficit adjusted for services surplus remains within manageable limits.

This is particularly notable given that Indian exports to the United States have faced pressure in recent months due to penal tariffs. Despite this, India’s overall export performance has held up reasonably well.

December 2025 Snapshot: Merchandise Trade Deficit at $25 Billion

For December 2025, India’s merchandise trade deficit remained stable at around $25 billion. This stability is important because December often reflects year-end adjustments and seasonal trade patterns.

More importantly, December data fits into a broader FY26 trend rather than signalling a sudden deterioration. The widening deficit needs to be viewed in the context of:

• Higher non-negotiable imports such as oil, gold, and electronics
• Shifts in export destinations away from the US toward other regions
• A steadily growing services trade surplus

India’s Trade Data for FY26 (First 9 Months)

The table below summarises India’s trade performance for the first nine months of FY26, compared with the same period last year.

Data Source: DGFT (Figures in $ Billion)

How to Read the Overall Trade Data

The trade data can be understood in three distinct layers.

1. Merchandise Trade: Structural Deficit

India continues to run a structural deficit in physical goods trade. This is largely driven by:

• Crude oil imports
• Gold imports
• Electronics and capital goods

In FY26 so far, the merchandise trade deficit is 10.9% higher year-on-year. While this reflects pressure on the goods account, it is not unexpected given global commodity prices and import dependencies.

2. Services Trade: The Key Cushion

India’s services trade remains the strongest offset to the merchandise deficit.

• Services exports grew 6.46% in FY26 (9M)
• Services imports grew just 1.48%
• The services trade surplus increased by 11.97%

This surplus is driven predominantly by IT and IT-enabled services exports, which continue to act as India’s external earnings engine.

However, it is important to note that:

• Services exports are 92.0% of merchandise exports
• Services surplus covers only 61.1% of the goods trade deficit

This means services alone cannot fully neutralise the goods deficit.

3. Overall Trade Deficit and CAD Impact

The overall trade deficit, which adjusts the goods deficit for the services surplus, stood at $96.58 billion for the first nine months of FY26. This is 9.2% higher than FY25.

This number directly feeds into the current account deficit (CAD). Despite the increase, the overall deficit remains within a range that does not threaten macro stability.

Shifts in Export Geography

One important trend visible in recent months is the change in export destinations.

• Indian exports to the US have weakened due to tariff pressures
• Exports to China, the Middle East, and Continental Europe have increased
• This diversification has helped stabilise overall export growth

Such geographic rebalancing has limited the damage from US-specific trade disruptions.

Breaking Down the FY26 Trade Story

From an investor and macro perspective, several points stand out.

• The merchandise deficit has widened, but remains manageable given India’s import structure
• Most imports are non-negotiable in the short term, especially oil and electronics
• Gold imports, however, may need policy rethinking due to their limited productive value
• Services exports continue to grow steadily, offering stability

Combined exports grew 4.3%, while combined imports grew 5.0%, explaining the moderate widening in the overall deficit.

Export and Import Drivers in FY26

Key Export Drivers

For the first nine months of FY26, the main contributors to export growth were:

• Cereals
• Electronic goods
• Cashew
• Dairy products

Food products continue to play a dominant role in export growth.

Key Import Drivers

On the import side, growth was driven by:

• Silver
• Sulphur
• Cotton
• Fertilisers

While fertiliser imports are necessary, they also widen the subsidy bill. Silver imports, on the other hand, add little productive value to the economy.

Why the Higher Deficit Still Looks Manageable

Despite a 9.2% increase in the overall trade deficit, the broader picture remains stable.

• The impact of 50% tariffs has been limited
• Export diversification has softened external shocks
• Services exports continue to provide a strong buffer
• With only three months left in FY26, the CAD is unlikely to exceed FY25 levels materially

This suggests that India’s external balance remains resilient.

Key Takeaways

• India’s merchandise trade deficit widened by 10.9% in FY26 (9M)
• Services trade surplus grew nearly 12%, cushioning the impact
• Overall trade deficit rose 9.2% but remains manageable
• Export diversification reduced reliance on the US market
• Services surplus covers about 61% of the goods deficit
• FY26 CAD is unlikely to deteriorate meaningfully

Disclaimer: This article is for general information and educational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any securities or financial products. Data is sourced from DGFT and may be subject to revision. Please consult a qualified professional before making any financial decision.