Trade deficit widens in June to 5-month high as exports slow

India’s merchandise trade deficit widened to a five-month high in June as exports fell sharply from the previous month and imports remained elevated, adding pressure on the rupee and the country’s external accounts.

The goods trade gap increased to $30.43 billion from $28.21 billion in May, according to data released by the commerce ministry on Monday, 13 July. That exceeded the median estimate of $26.63 billion in a Reuters survey of economists.

The deficit was also 59% wider than the $19.10 billion recorded in June last year.

Merchandise exports totaled $40.41 billion, up 15.5% from a year earlier but down almost 11% from $45.20 billion in May. Imports stood at $70.84 billion, compared with $73.41 billion in the previous month and $54.08 billion a year earlier.

The month-on-month decline in imports was not enough to offset the steeper fall in exports.

The figures point to a more difficult external environment for India as weaker demand in some overseas markets converges with higher shipping and insurance costs caused by tensions in the Middle East.

Disruptions around the Strait of Hormuz, one of the world’s most important energy and shipping routes, have complicated trade flows and raised freight costs. Exporters have also faced delays and weaker orders from some of India’s major markets.

The deficit widened even though several major export categories posted strong annual growth.

Engineering goods exports rose 20.7% from a year ago to $11.48 billion, while electronics shipments increased 18.9% to $4.93 billion. Gems and jewelry exports climbed 34.6% to $2.41 billion.

Exports of organic and inorganic chemicals rose 19.4% to $2.77 billion, while rice shipments gained 16.5% to about $1 billion.

Non-petroleum exports increased to $35.54 billion from $30.51 billion a year earlier. Excluding petroleum products and gems and jewelry, exports rose 15.3% to $33.13 billion.

Those figures suggest that export growth remained relatively broad on a year-on-year basis, even as the sequential decline exposed a loss of momentum during June.

Imports grew more quickly.

Non-petroleum imports rose to $51.52 billion from $40.28 billion a year earlier. Imports excluding petroleum products and gems and jewelry increased to $48.25 billion from $36.73 billion.

That indicates the wider deficit was not driven solely by crude oil or precious metals. Stronger imports of electronics, machinery and other industrial goods also contributed to the increase.

Oil imports fell from May, as did gold purchases, but the overall import bill remained substantially above its level a year earlier. India imports more than 85% of the crude oil it consumes, making its trade balance particularly sensitive to energy prices and disruptions in the Middle East.

The deterioration was also visible in the quarterly numbers.

Merchandise exports rose 15.9% from a year earlier to $129.32 billion in the April-to-June period. Imports increased almost 20% to $216.18 billion, widening the goods trade deficit to $86.86 billion from $68.75 billion.

Services exports continued to provide a buffer.

The government estimated services exports at $33.03 billion in June and imports at $17.92 billion, implying a services surplus of $15.11 billion. The services figures are estimates because the latest available Reserve Bank of India data cover an earlier period.

Including goods and services, India’s overall trade deficit was estimated at $15.32 billion in June, up from $10.51 billion in May.

For the first three months of the fiscal year, combined goods and services exports rose 11.4% to $232.73 billion. Imports increased 17.6% to $270.15 billion, widening the overall deficit to $37.42 billion from $20.85 billion a year earlier.

A sustained increase in the trade deficit could weigh on the rupee and widen the current-account gap, particularly if crude prices rise again.

The rupee fell to a one-month low on Monday as traders responded to higher oil prices and the larger-than-expected deficit. India’s dependence on imported energy means an increase in oil prices can weaken the currency, raise inflation and push up the cost of imports at the same time.

ICRA chief economist Aditi Nayar said the rise in imports could push the current-account deficit to at least 1% of gross domestic product in the fiscal year ending March 2027, Reuters reported.

That would remain below the levels seen during earlier periods of external stress, but it would mark a reversal after a relatively contained deficit last year.

The trade data also come as India and the US continue negotiations over an interim trade agreement. New Delhi has resisted pressure to conclude a deal quickly and is seeking better tariff terms and safeguards for sensitive sectors including agriculture.

The US remained India’s largest export market in the June quarter, though shipments during the month were slightly lower than a year earlier.