By Anagh KeremuttIndia’s trade deficit widened sharply in FY26.
India’s total imports grew faster than exports over the financial year, pushing the trade deficit up by 26% to $119.3 billion. But unlike previous years, oil wasn’t the main driver. Petroleum imports actually fell 6.4%. Instead, the pressure came from rising gold prices and a surge in electronics imports.
Gold saw a sharp jump in prices throughout the year, as conflicts and trade tariffs drew investors into what many see as a safe haven investment. So even though gold volumes declined, the overall import bill rose.
Silver imports saw both prices and volumes moving up. Electronics imports also climbed, driven by strong domestic buying and the needs of a growing manufacturing base.
Growth was more muted on the export side. Total exports rose 4.2% to a record $860 billion. Services continued to be the anchor, expanding 7.9% and generating a surplus of over $213 billion.
While merchandise (goods) exports were flat, engineering exports stood out. Pankaj Chadha of EEPC India said, “Engineering goods exports hit an all-time high of $122.4 billion despite external disruptions.”
That’s what sets FY26 apart: the deficit is widening, but not because of a weakening economy. Strong domestic demand, resilient services exports, and pockets of manufacturing strength are all visible in the underlying numbers.
In this edition of Chart of the Week, we look at how precious metals are driving the deficit, and how India’s trade structure is changing.
Precious metals drive a widening trade deficit
A large part of the widening deficit traces back to precious metals. Average gold import prices surged 30.3% in FY26, lifting the import bill.
Throughout the year, central banks increased gold buying amid geopolitical uncertainties and the US-Iran war. Expectations of interest rate cuts made gold more attractive relative to other fixed-income assets.
Silver moved even faster, pushing total import values up more than 2.5x. Supply shortages, festive demand, and rising industrial use in electronics and solar all played a role.
Aditi Nayar, Chief Economist at ICRA, pointed to the price shock in precious metals while explaining the current account outlook, highlighting the “gold price spike” as a key reason behind the widening gap.
Rising exports, powered by more imports
Part of the rise in merchandise imports also reflects stronger economic activity. India’s exports of engineering goods and electronics have picked up. But these exports depend on imported inputs. Chips, components, metals, and intermediates all come from global supply chains. As output rises, imports rise along with it.
Electronics imports grew by 17.8%, while machinery imports rose by over 14%, reflecting demand for components and capital equipment. These imports are harder to cut back on. Electronics tracks consumption demand, while machinery points to ongoing investment. Pulling back here does not just reduce imports; it also hampers domestic economic activity.
Exports are picking up in similar segments. Non-petroleum exports rose 3.6%. Engineering goods grew nearly 5%, while electronics surged 25%, taking shipments close to $48 billion.
Other sectors were far more muted. Pharmagrew just 2.1%, chemicals were flat, and petroleum product exports fell 15% on lower global crude prices through most of FY26. This kept overall export growth modest despite strength in electronics.
Commerce Secretary Rajesh Agrawal noted that export growth is coming from a “diversified basket, strengthening India’s position in global value chains.” Assembling a product requires parts sourced across countries. The final export leaves from India, but many of the pieces arrive first from elsewhere.
The surplus in trade excluding petroleum and gems & jewellery stood at around $75 billion, supported by electronics export, though it narrowed slightly in FY26.
India: The middleman in global trade
India is exporting to more countries now. Exports to China surged 36.7% in FY26, while Spain and Hong Kong saw growth of 46% and 33%, respectively. Exports to Vietnam and Sri Lanka also grew by around 20%.
Even as exports diversify, a few markets still dominate. The US, UAE, and China alone account for about a third of India’s exports. This concentration makes trade vulnerable to regional disruptions. The war involving the US, Israel and Iran did exactly that, pulling down India’s trade with West Asia. In March alone, exports and imports to the region fell by over 50%. Crude oil imports dropped nearly 36%, while gold imports fell 31.6%.
China remains the largest source of India’s imports, accounting for roughly 17%. The UAE follows in second place, while other key suppliers include Russia and the US. Beyond that, imports are spread across a wide set of countries.
Imports from China rose about 16% in FY26, crossing $131 billion, with much of it feeding into electronics and engineering supply chains.
This creates a loop where inputs come in from China, production happens in India, and finished goods move out to other markets. As exports grow, imports tied to those supply chains grow too.
The US remains India’s largest export market, but the balance is changing. Export growth was marginal here, while imports from the US rose about 16%, leading to a roughly 19% decline in the trade surplus.
Higher tariffs earlier in the year added pressure for exporters. Some absorbed the cost, while others passed it on through higher prices, affecting their ability to compete. Towards the end of the financial year, tariffs were reduced to 18% under an interim pact. While that should help, the effects will take time to show.
Ajay Srivastava, founder of the Global Trade Research Initiative, noted that “easing tariffs could support a recovery in exports as trade terms improve.”
The trade data in FY26 shows how India imports inputs from one set of countries and exports finished goods to another. While this supports trade flows, it also puts pressure on the overall trade balance.
If gold prices stabilise in the coming months and export momentum holds, the deficit can ease. But if import-intensive growth continues or global prices rise again, the pressure is likely to persist.