India’s trade outlook for the current financial year is uncertain due to the threat of reciprocal tariffs by the United States. According to a report by Union Bank of India, the country’s current account deficit (CAD) is expected to widen to 1.2% of GDP in FY26, up from 0.9% in FY25. The report attributes this to a sharp rise in imports amid ongoing trade disruptions, despite a 90-day pause on the proposed US tariffs.
The merchandise trade deficit widened to $26.42 billion in April 2025, exceeding the estimated $20 billion and the $19.19 billion recorded in April 2024. This was driven by a $1.4 billion increase in imports and a $3.5 billion decline in exports. The non-oil non-gold (NONG) trade deficit nearly tripled on a monthly basis, with major contributors being chemicals, machinery, and electronics. The report suggests that this sharp jump in NONG imports could indicate early signs of dumping-related activity in these sectors.
However, India’s services trade surplus remained strong, standing at $17.8 billion in April 2025, slightly lower than $18.1 billion in March 2025, but significantly higher than $13.4 billion in April 2024. The strong performance in the services sector is seen as a positive trend, especially in the context of a slowing global economy. The services surplus is expected to provide some relief to India’s overall current account position in the coming months.
The report highlights that the threat of US tariffs continues to weigh on the outlook for Indian exports, and the widening trade deficit is a concern. The oil and gold trade deficit narrowed in April 2025, but this was offset by the steep increase in the NONG trade deficit. The report concludes that the current account deficit is expected to widen in FY26, but the services sector is likely to provide some support to India’s trade position. Overall, India’s trade outlook remains uncertain, and the country needs to be cautious in its trade dealings to mitigate the impact of the US tariffs.