India’s June Trade Deficit Contracts to $18.78bn as Imports Ease

India’s merchandise trade deficit in June 2025 shrank to $18.78 billion, significantly tighter than the $21.88 billion recorded in May and markedly below economists’ $22.2 billion projection. The improvement comes as import values—especially crude oil and gold—declined sharply, while exports hit a modest seven-month low.

Imports Drop, Crude Oil & Gold Bear the Brunt

June saw a steep pullback in merchandise imports, down to $53.92 billion from $60.6 billion in May. Crude oil imports fell from $14.7 billion to $13.7 billion, while gold imports slid from $2.5 billion to $1.8 billion.

Electronics, another high-value category, also showed a modest dip, reflecting both easing domestic demand and a recalibration of supply chains. This drop in key commodities and capital goods – particularly oil – played a major role in narrowing the trade gap.

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Exports Falter to Seven‑Month Lows

On the flip side, exports retreated to $35.14 billion, a 9% dip from May and the lowest level since November. While weaker crude prices explain much of the slide, the shortfall also reflects muted global demand and trade policy uncertainties in key markets.

Shipments of petroleum products, engineering goods, and textiles declined sharply, contributing to the slowdown. However, pharmaceuticals and agricultural exports continued to hold steady, offering a partial buffer against the broader weakness.

That said, export levels between April and June remain ahead year-on-year at ~$112 billion, outpacing imports of ~$179 billion. The trade balance for Q1 FY26, though still negative, suggests gradual improvement over previous quarters.

With Services Performing Steadily

In services, the trend was more upbeat. June’s surplus stood at $15.62 billion, driven by robust exports of IT, financial and business services. Exports totalled $32.8 billion, while imports came in at $17.6 billion, helping offset some goods-side weakness.

This strong services performance not only softens the impact of the merchandise trade gap but also reinforces India’s ongoing transition toward a more services-driven export model. It continues to be a stabilising force for the broader current account.

Why This Matters

• Macroeconomic relief: A smaller trade deficit eases pressure on the current account and the Indian rupee, providing the RBI with more policy flexibility.
• Energy impact: Lower oil bills help trim overall import costs, offering some breathing room amid global crude volatility.
• Mixed recovery signals: Goods sector underperformance continues, even as services remain resilient. This divergence may shape future trade and industrial policy.
• Policy lens: With elections behind and global shipping routes stabilising, trade performance will likely influence upcoming budgetary and regulatory moves.

Looking Ahead

With oil prices still soft and gold demand subdued, the deficit may stay narrow in July. However, global headwinds such as slower Chinese recovery, Red Sea shipping disruptions, and shifting tariff alignments with the U.S. and E.U. will need monitoring.

Policymakers and analysts will be closely watching whether the services sector can continue offsetting sluggish goods exports and if import compression is cyclical or structural. Expect trade dynamics to remain a central theme in monetary and fiscal discussions through the second half of FY26.