Trade gap narrows in August as imports cool, US tariffs bite

India’s merchandise trade deficit eased to $26.49 billion in August from $27.35 billion the previous month as imports softened even as exporters braced for new US tariffs, provisional government data released on Monday showed.

Exports declined to $35.10 billion in August from about $37.24 billion the previous month, the lowest figure in nine months. Imports fell more sharply, to $61.59 billion from $64.59 billion, helping to reduce the trade shortfall.

When services are accounted for, the overall goods-and-services trade deficit was estimated at around $9.88 billion. Services exports were provisionally put at $34.06 billion and services imports at $17.45 billion, though these numbers typically lag and are often revised.

A key driver in the decline in exports has been the recent increase in US tariffs on Indian goods. From 27 August, the US imposed an additional 25 percentage points of duties, lifting total tariffs on many Indian exports to roughly 50%, in response to India’s continued oil imports from Russia. India has rejected the charges, insisting that energy security requires it to maintain access to discounted Russian crude.

However, the immediate effect showed up in India’s trade with the US as exports dropped from $8.01 billion in July to $6.86 billion in August. While other export destinations offered some relief, the loss of competitiveness in the US market is already squeezing certain sectors such as textiles, footwear, jewelry, chemicals among them, according to Reuters and trade officials.

On the import side, India saw growth in certain categories even as overall import values dropped. Palm oil imports jumped to nearly one-million metric tons in August, about a 15.76% increase from the previous month, as cheaper palm oil competed with costlier alternatives such as soya and sunflower oil.

Sunflower oil imports rose 28.5% in August, and India even brought in its first canola cargo in nearly five years, industry data showed.

The approaching festival season also likely pushed demand higher. Meanwhile, edible oil imports overall hit their highest in over a year.

Import of fuel and power declined year-on-year, while manufactured goods saw a moderate price rise, according to India’s Wholesale Price Index (WPI) data.

The WPI rose 0.52% year-on-year in August, with manufactured products up 2.55% and fuel and power down 3.17%.

Meanwhile, Reuters reported that New Delhi and Washington will hold talks in the Indian capital on Tuesday, with India’s chief negotiator Rajesh Agarwal set to meet his US counterpart Brendan Lynch, the Assistant Trade Representative for South and Central Asia.

The meeting is expected to cover not just the tariffs but also the possibility of a broader bilateral trade arrangement.

Previous rounds of negotiation have collapsed under pressure when the US demanded sweeping concessions in areas such as agriculture and dairy, the two sectors India has been loath to expose fully to foreign competitors.

Analysts said a similar pattern could recur now, with New Delhi standing its ground on sensitive sectors while seeking relief in other ones.

Some economists suggested that the narrowing of the August deficit is not necessarily a sign of strength.

The moderation was led more by reduced import demand than by robust export growth. With the US market under stress and Europe grappling with weak consumption, India’s exporters may have to seek alternative markets in the Middle East, Africa and Southeast Asia to offset losses.

There are also inflation risks embedded in the trade mix. Lower imports of fuel and inputs can create bottlenecks in domestic supply chains, raising costs for manufacturers. At the same time, higher edible oil inflows may ease food inflation temporarily, though global price volatility remains a threat, analysts said.

Looking ahead, much will depend on the outcome of Tuesday’s talks. A breakthrough could relieve some pressure on exporters, while failure could lock both sides into a cycle of retaliation. The next two months of trade data will be closely watched to see whether the August dip in exports is the beginning of a deeper slump or a temporary reaction to the sudden tariff shock.