Trade Deficit Narrows in June 2025: A Positive Start for FY26

Data Source: DGFT and RBI | Period: June 2025 and Q1 FY26

India’s external trade position showed a meaningful improvement in June 2025, setting a more stable tone for FY26. Despite global uncertainties and soft export demand, a sharp fall in imports helped narrow the country’s merchandise trade deficit, while a strong services surplus further cushioned the impact.

Merchandise Trade Deficit Narrows for the Second Month

The merchandise trade deficit for June 2025 fell to $18.78 billion, down from $21.88 billion in May and $26.42 billion in April. While merchandise exports declined slightly, imports fell at a faster pace, helping narrow the gap.

• June 2025 Exports: Below the 12-month average of $36.69 billion
• June 2025 Imports: Sharply below the 12-month average of $60.25 billion
• June 2025 Trade Deficit: $18.78 billion vs. 12-month average of $23.56 billion
• Total Trade in June: $89.06 billion vs. 12-month average of $96.93 billion

This signals some contraction in global trade activity, but also reflects India’s improved import discipline and lower crude oil prices.

Services Surplus Continues to Offset Deficit

The services trade surplus remained strong at $15.26 billion in June 2025. While services exports were lower than the previous month, the trade surplus was still high enough to significantly offset the merchandise trade deficit.

• Services Surplus (June 2025): $15.26 billion
• Net Deficit (Merchandise + Services): Just $3.52 billion

This marks a relatively stable position for India’s overall trade account for the month.

FY26 Q1 Trade Data vs. FY25 Q1

Let’s compare the first quarter of FY26 (April–June) with the same period last year (FY25 Q1):

Key Highlights & Inferences

1. Merchandise Trade: The Q1 FY26 merchandise deficit rose 8.33% YoY due to imports rising faster than exports.
2. Services Trade: Services surplus grew 18.32%, driven by nearly 11% growth in services exports.
3. Overall Trade Deficit: Narrowed to $20.32 billion in Q1 FY26, down from $22.42 billion in Q1 FY25.
4. Services-to-Goods Export Ratio: Rose from 80.4% to 87.5%, showing increasing reliance on service exports amid global goods trade headwinds.
5. Trade Volumes: Combined trade volume rose 5.12% year-on-year, showing resilience despite challenges.

What This Means for FY26 Current Account Deficit (CAD)

India reported a CAD of just 0.6% of GDP in FY25, largely due to a robust Q4 performance, which included a surprise trade surplus. Looking at the Q1 FY26 numbers, the trend continues to be encouraging.

The narrowing overall trade deficit and strong services performance signal that CAD should remain in a comfortable zone in FY26, barring any sharp shocks in oil prices or global demand.

Conclusion: A Stable External Position Emerging

The narrowing trade deficit in June 2025 is a welcome sign for India’s economy. The services sector continues to act as a buffer against merchandise trade imbalances. While global headwinds still pose challenges for merchandise exports, disciplined import trends and resilient services exports offer a cushion.

As FY26 unfolds, the focus should remain on enhancing competitiveness in both goods and services exports while managing vulnerabilities in oil and capital imports. For now, India’s trade data presents a stable picture for the external account - and a hopeful outlook for another low-CAD year.

Disclaimer: This article is for informational purposes only and does not constitute investment, tax, or legal advice. Please consult a SEBI-registered financial advisor before making any investment decisions.