India’s trade deficit narrows as exports rebound, services surplus stays strong

India’s external sector showed notable resilience in March 2026, with the goods trade deficit narrowing to around $21 billion, supported by a recovery in exports and a sharp decline in precious metal imports, according to a report by Emkay Global Financial Services.

The improvement came as total imports fell by nearly 6% month-on-month to $59.6 billion, while exports rose by 6% to $38.9 billion. At the same time, a strong services surplus continued to cushion the overall external balance, with net services exports rising to $18.2 billion during the month. For FY26, services exports recorded a healthy growth of 13%.

A key factor behind the narrowing deficit was the steep drop in gold and silver imports. Gold import values plunged by 59%, while silver imports declined by 63% compared to the previous month.

Oil dynamics also played a crucial role. Despite higher global crude prices, oil imports fell about 6% month-on-month, largely due to a sharp contraction in volumes—estimated at 35–40%—following disruptions linked to the Strait of Hormuz. On the export side, petroleum shipments surged 51% to $5.2 billion, marking the highest level since May 2025, aided by elevated global prices for refined products.

However, geopolitical tensions in the Middle East impacted trade flows with key partners. Exports to Saudi Arabia and the United Arab Emirates dropped sharply by 44% and 60% respectively, contributing to a 22% decline in gems and jewellery exports.

Looking ahead, the report projects a current account deficit of about 1.7% of GDP for FY27 under a baseline scenario of Brent crude at $80 per barrel. It also anticipates a balance of payments shortfall exceeding $35 billion.

While services exports—supported by Global Capability Centres (GCCs)—have remained robust, the outlook for FY27 could face risks if the ongoing Middle East crisis continues to weigh on global growth.

With inputs from IANS