What a year of trade data tells us about India’s economic priorities

India’s upcoming Union Budget 2026 is expected to place trade policy at the heart of its economic strategy. A widening merchandise trade deficit, shrinking exports to key markets, and rising geopolitical pressures are converging to shape what may become one of the most trade-sensitive budgets in recent years.

India’s latest trade numbers offer a clear snapshot of where the economy is leaning, and where pressures are building. Over the first eight months of FY26, exports have held up despite global uncertainty, services continue to quietly bankroll the external account, and imports, particularly non-oil, non-gems, signal a consumption- and investment-driven economy that remains deeply integrated with global supply chains.

Deficit widens, but not alarmingly so

India’s merchandise trade deficit widened to $25.04 billion in December, reversing November’s five-month low. Imports rose sharply to $63.55 billion, outpacing a modest 1.86% year-on-year rise in exports to $38.51 billion.

While the gap was wider than November’s $24.53 billion, it came in below market expectations of $27 billion.


The broader picture, however, is one of manageable imbalance rather than stress.

During April–December 2025, total exports -- merchandise and services combined -- rose 4.33% to $634.26 billion, while imports grew 4.95% to $730.84 billion, resulting in an overall trade deficit of $96.58 billion, wider than last year’s $88.43 billion but still cushioned by a large services surplus.

Services remain India’s shock absorber

If merchandise trade reflects India’s vulnerabilities, services trade highlights its resilience.

In December, services exports were estimated at $35.50 billion, against imports of $17.38 billion, yielding a surplus of $18.12 billion.

Over April–December, services exports climbed to $303.97 billion, while imports stood at $152.23 billion, pushing the services trade surplus to $151.74 billion, up from $135.52 billion a year earlier.

This surplus continues to offset a large part of the merchandise deficit, underscoring India’s growing reliance on IT, business services and other knowledge-based exports as a stabilising force in its external accounts.

Export growth: steady, selective and policy-aligned

Merchandise exports grew 2.44% year-on-year in the first nine months of FY26 to $330.29 billion, with growth concentrated in sectors aligned with India’s industrial and export-promotion priorities.

In December alone, electronic goods exports jumped 16.78%, rising to $4.17 billion, reinforcing the push to position India as a manufacturing alternative in global electronics supply chains. Drugs and pharmaceuticals exports rose 5.65%, while engineering goods -- India’s largest export segment -- posted modest growth of 1.28%.

Agriculture- and food-linked exports also stood out. Meat, dairy and poultry exports surged 30.16%, while marine products rose 11.73%, reflecting diversification beyond traditional staples.

Non-petroleum exports during April–December climbed 5.51% to $288.16 billion, pointing to underlying strength outside volatile oil-linked trade.

Commerce Secretary Rajesh Agrawal said India remains on track to cross $850 billion in exports this financial year, noting that by end-December, exports had stayed in positive territory despite global headwinds.

Imports signal domestic demand and supply-chain dependence

Imports tell a complementary story. While headline growth widened the deficit, the composition suggests robust domestic demand rather than distress-driven buying.

Non-petroleum and non-gems & jewellery imports rose sharply -- to $371.93 billion during April–December, up from $339.67 billion a year earlier. This reflects sustained imports of intermediate goods, electronics components and industrial inputs tied to manufacturing and infrastructure activity.

At the same time, imports of gold, transport equipment, iron and steel, chemicals and textiles declined in December, indicating some moderation in discretionary or price-sensitive categories.

China remained India’s largest source of imports, with shipments rising 20.01% in December and 13.46% over April–December, highlighting continued dependence on Chinese inputs even as diversification remains a stated policy goal.

Shifting trade geography mirrors strategic recalibration

Trade flows over the year point to a deliberate widening of India’s export map.

The US, UAE and China emerged as India’s top export destinations during April–December. Exports to China surged 36.68%, while shipments to the US grew 9.75%, despite tariff tensions and earlier disruptions in bilateral trade talks. Strong growth was also recorded in markets such as Spain, Hong Kong, Malaysia and the UAE.

What the numbers ultimately say

Taken together, the year’s trade data underscores three clear priorities shaping India’s economic strategy.

First, services exports remain the backbone of external stability, absorbing shocks from volatile merchandise trade.

Second, the export mix shows a gradual shift toward electronics, pharmaceuticals and value-added manufacturing, even as traditional sectors continue to contribute.

Third, rising non-oil imports reflect an economy that is growing, investing and consuming, but also one that remains deeply plugged into global supply chains.

As India heads into the final quarter of the financial year and prepares for Budget 2026, the trade numbers suggest continuity rather than course correction: manage the deficit, deepen services strength, and keep nudging manufacturing exports up the value chain -- one shipment at a time.