Goods trade deficit shrinks on lower oil, gold imports

India’s goods trade deficit narrowed sharply in June, offering a rare respite amid global trade turbulence shaped by tariff wars, supply chain disruptions, and weakening demand in advanced economies.

The merchandise trade deficit shrunk by about 14% from the previous month, falling to $18.78 billion from $21.88 billion in May, as softer imports of crude oil, gold and coal offset sluggish exports. Year‑on‑year, the deficit was also down nearly 9.9% from $20.84 billion.

Goods exports in June held steady at $35.14 billion when compared with $35.16 billion a year ago, reflecting weak global goods demand and heightened protectionism in key markets, while imports dropped 3.7% to $53.92 billion, easing the pressure on the trade gap.

The overall trade deficit (goods and services combined) came in at $3.51 billion in June, less than half the $7.30 billion gap recorded a year ago, as robust services exports offset flat merchandise shipments, data released by the ministry of commerce and industry on Tuesday showed.

Total exports rose 6.5% year-on-year to $67.98 billion in June, while imports edged up just 0.5% to $71.50 billion.

Services remained the economy’s strongest pillar as their exports jumped to an estimated $32.84 billion in June from $28.67 billion a year ago, a growth of nearly 15%, driven by continued global demand for India’s IT and business process outsourcing, which remains competitive even as the US and EU tighten data localization norms and impose sustainability standards on offshore suppliers.

During the April–June quarter as a whole, India’s total exports (goods and services) rose nearly 6% year-on-year to $210.31 billion, while imports increased 4.3% to $230.62 billion, narrowing the overall quarterly trade deficit to $20.31 billion when compared with $22.42 billion a year earlier.

The shift in composition highlights the impact of geopolitical fault lines and policy shifts on India’s trade. Several traditional export sectors such as textiles, leather, gems and jewelry and petroleum products continued to falter under the twin pressures of subdued European demand and escalating tariffs in the US, with petroleum shipments down nearly 16% in June.

In contrast, electronics exports, buoyed by production-linked incentives and multinational firms diversifying away from China, soared nearly 47% year-on-year to $4.14 billion. Engineering goods and pharmaceuticals posted modest gains, while niche sectors such as marine products, tea, rice and chemicals recorded double-digit growth.

At the same time, imports of crude oil, gold and coal declined sharply, easing India’s external bill and reflecting weaker global commodity prices alongside strategic sourcing of discounted Russian oil despite Western sanctions.

Geographically, India’s export strategy continues to rely heavily on the US, its largest single market, where shipments surged 23.5% in June despite the Trump administration’s tariff hikes on Indian goods announced in April.

Official figures showed that India’s exports to the US accounted for nearly one-third of its export growth in the quarter, aided by strong demand for electronics, pharmaceuticals and apparel. Shipments to China also rebounded, rising 17% in June and nearly 18% during the quarter.

India’s services strength is now at the heart of a broader strategic pivot.

In its latest ‘Trade Watch’ report released on Monday, government think tank NITI Aayog called for negotiating a services-oriented trade pact with the US, modeled on India’s recent deal with the UK.

The report primarily focused on the strategic importance of securing better visa access for Indian professionals, creating robust provisions for digital trade, and expanding recognition of Indian qualifications in high-value fields such as engineering, healthcare and cybersecurity.

Such a pact, it argued, would unlock further growth in India’s most competitive export sectors while addressing regulatory hurdles, data flow restrictions, and intellectual property concerns that currently impede services trade.

Reuters and Bloomberg reported that ongoing talks with Washington are already exploring reciprocal concessions, including greater US access to Indian agriculture and lower Indian tariffs on select American goods.

Exporters have responded by front-loading shipments to the US, while government officials work to avoid a steep tariff escalation that would hit sensitive sectors such as textiles, shrimp and rice.

These developments come against the backdrop of an increasingly fragmented global trading system. The World Trade Organization has warned that world merchandise trade volumes could contract by 0.2% this year, with WTO Director-General Ngozi Okonjo-Iweala calling the outlook “concerning,” particularly as US-China tariffs exceed 100% in some categories.

Analysts noted that the bifurcation of the global economy into US- and China-led blocs risks slicing as much as 7% off global GDP, with India seeking to hedge that risk through new deals with the UK, EU and Australia.

At home, commerce secretary Sunil Barthwal told reporters on Tuesday that “if growth continues at this pace, we will surpass last year’s record export figures,” which had topped $825 billion.

The narrower June deficit offers reassurance, though trade experts cautioned that continued volatility in energy prices, tighter credit globally, and slower Western growth could weigh on demand in coming quarters.

Against this backdrop, the NITI Aayog report framed a US-focused services trade pact as “both a strategic and economic imperative” to sustain India’s innovation-driven growth and external sector stability.