Record Trade Deficit in Oct-25: Why India Faces a Rising CAD Risk

India posted a massive trade deficit of $41.6 billion in October 2025. But the more worrying number is the cumulative deficit of $78.15 billion for April–October FY26 - this is after adjusting for the services surplus, which means it directly hits the current account deficit (CAD).

The pressure is coming from two sides at once: slowing exports and rising imports. And with the US tightening tariffs and outsourcing rules, the stress on India’s trade position is becoming more visible month after month.

Why Trade Numbers Are Showing Pressure

To understand the real stress, looking only at October doesn’t help. The cumulative numbers tell a deeper story.

Goods exports have been hit hard by US penal tariffs, and India’s services sector - traditionally the buffer - is also seeing slower orders from US companies who are turning cautious due to possible 25% tax on outsourced IT services.

It’s a “double-whammy” for India: weaker merchandise exports and slowing services exports.

Year-to-Date Trade Snapshot (Apr–Oct FY26)

Data Source: Ministry of Commerce (figures are in $ billion)

The Three Factors Behind the Record Oct-25 Deficit

1) Steep Fall in Goods Exports

Goods exports fell –11.8% in October due to US tariffs. Imports, meanwhile, grew +16.6% yoy, widening the gap sharply.

2) Gold & Electronics Pushed Imports Higher

Crude imports were stable, but India imported $14.5 billion of gold - one of the highest in recent times. Electronics parts are also rising, because India needs them for its own export-linked manufacturing.

3) Services Feel the Heat Too

US companies are cautious about IT and consulting orders as they may have to pay 25% extra tax on outsourced services. This is slowing services growth - India’s traditional shock absorber.

Why This Is Bad News for CAD

1) The Goods Side Is the Main Problem

Merchandise exports grew just 0.63% but imports grew 6.37%. This imbalance has pushed the goods deficit up nearly 15% yoy.

2) Services Are Growing, But Too Slowly

Services exports grew 9.75% - still positive, but losing steam due to US pricing pressure.

3) Deficit Is Rising Faster Than Surplus

The combined deficit of $78.15 billion is already 11.79% higher than last year.

4) Services Surplus Can’t Cover the Goods Gap

In FY25, services exports were 93.4% of goods exports (because goods were stagnant). But the services surplus could offset only 60.3% of the goods deficit.

This mismatch is widening - and that’s the real macro risk.

Risk of CAD Above 3% of GDP

If trends continue, India’s current account deficit could exceed 3% of GDP. High CAD can:

• weaken the rupee,
• make imports costlier,
• worsen inflation,
• pressure foreign investor sentiment.

The real danger is a self-reinforcing cycle: weak exports → higher deficit → weaker rupee → costlier imports → even wider deficit.

A cycle India must avoid at all costs.

Key Takeaways

• India’s trade deficit hit $41.6B in Oct-25 and $78.15B year-to-date - directly impacting CAD.
• US tariffs and weak global demand hurt merchandise exports.
• Gold and electronics pushed imports higher despite stable crude.
• Services growth is slowing as US firms tighten outsourcing budgets.
• At this trend, India risks CAD rising above 3% of GDP, putting pressure on the rupee.

Disclaimer: This article is for informational and educational purposes only and does not constitute investment, economic, or policy advice. Please consult a registered advisor before making investment decisions.