August trade data is a relief for govt, but for how long?

The country’s merchandise exports rose by a healthy 6.7 per cent year-on-year to $35.1 billion in August. Consequently, the merchandise trade deficit stood at $26.5 billion, significantly lower than the year ago level of $35.6 billion, which had been driven by an unusual surge in gold imports.

Of course, it comes as a respite for the government, at a time when it faces demands ranging from interest subvention to loan repayment moratoriums from labour-intensive sectors such as seafood and textiles and apparels.

Notably, pace of expansion in India’s exports to the US slowed to 7 per cent with the onset of the 50 per cent tariffs by the US. Overall, Icra expects the current account deficit to enlarge to $11-14 billion in Q2.

Merchandise trade deficit dipped marginally to $26.5 bn in August thanks to slowing of exports and imports both.

While there are several headwinds for services exports, growth has been strong in FY26 so far.

Emkay maintains FY26 CAD/GDP estimate at 1.2 per cent, with negative merchandise export growth, led by the US. Net services export growth is also likely to slow down, due to global uncertainty.

Oil imports fell to $13.3bn, possibly reflecting delivery of cheaper cargos booked after the end of the brief Israel-Iran conflict.

The core deficit was steady at $14.6bn, with core exports declining more than core imports. Core exports have seen higher growth than core imports as on date. Among major export categories, electronics has been the best performer, followed by drugs & pharma, engineering goods, and organic and inorganic chemicals. On the core imports front, electronics and machinery have had significant growth in FY26.

Services surplus stayed steady at $16.6bn in August, from heavily revised up by $16.5bn in July. Provisional services surplus is $81bn, 19per cent higher than the year-ago period. For August, exports as well as imports were up 1per cent MoM. Services exports, especially software services, are facing headwinds in FY26 from tariff-led global uncertainty; however, growth has stayed strong so far.

Analysts believe FY26 CAD/GDP at 1.2per cent, with negative merchandise export growth, especially US exports, even with non-oil import growth likely to slow down with sluggish domestic demand. Experts opine that the 60per cent of Indian exports to US facing 50per cent tariffs will see a drop of 33per cent in FY26, while the remaining categories could still see healthy growth.

The goods trade deficit/GDP is likely to rise to 7.6per cent of GDP, with Electronics exports being resilient. Net services exports are also likely to see slower growth, especially IT services, due to global uncertainty and US growth slowdown.

The only issue is that how long this respite will last. It will depend on trajectory of renewed trade negotiations between India, and its largest trading partner, the US, amid America’s punishing 50 per cent tariffs on imports which became effective since August 27.