According to a report by Union Bank of India, India’s merchandise trade deficit is expected to have decreased slightly in August 2025, from $27.4 billion in July to $26.1 billion. This modest reduction is largely attributed to a surge in gold demand ahead of the upcoming festive and wedding season, despite higher prices. Gold imports nearly doubled in August, providing a boost to trade activity.
However, commodity prices offered only mild relief, and trade dynamics remained under pressure due to the lack of progress in the India-US trade deal negotiations. The US is a significant trade partner for India, accounting for around 20% of the country’s goods exports. The stalemate in the trade deal has weighed on India’s outbound shipments.
To support domestic industries facing tariff-related challenges, the government has relaxed norms under the Advance Authorization Scheme, allowing duty-free import of raw materials for export production. This move aims to cushion exporters against the impact of the ongoing 50% US tariff.
Looking ahead, the trade deficit is likely to remain elevated in the near term due to strong gold imports during the festive season, steady energy demand, and continued dependence on electronics and capital goods imports. Some relief may come from softening global commodity prices and ongoing efforts at import substitution. However, export growth is expected to remain muted due to weak global demand and tariff headwinds.
The report suggests that any positive development on the India-US trade deal could offer much-needed support to exports. By reducing tariff barriers, such an agreement would aid export recovery to the US, India’s key trade partner. While the near-term impact may be limited, the deal could help strengthen India’s export base over time, partially offsetting pressures on the trade balance in the quarters ahead. Overall, India’s trade deficit is expected to remain a challenge, but a potential breakthrough in the India-US trade deal could provide a much-needed boost to the country’s exports.