India’s trade momentum remains firm despite global volatility

India’s total merchandise exports during current fiscal so far inched up to $220 bn. Cumulative exports to the USA also registered growth of $45 bn. It means the country’s trade momentum has remained firm in spite of ongoing global volatility.

Interestingly, share of India’s merchandise exports to other countries during this period has increased significantly indicating diversification of our exports basket with UAE, China, Vietnam, Japan and Hong Kong, as also Bangladesh, Sri Lanka and Nigeria being among the top destinations across different product categories. Meanwhile, when we look at the imports of these commodities by the USA, August shows declining growth. The buoyancy in trade talks reaffirms India’s desire to come out of the highest tariff structure while enhancing capability building across several loops with recently concluded LPG deals and strategic defence deals last month bolstering the fair probability of a mutually amicable, fruitful negotiation. Tariff has impacted India’s labour-intensive sectors such as textiles, jewellery and seafood, particularly shrimp – which operates with a lower margin. To support the exporters, Government has approved Rs 45,060 crore, including Rs 20,000 crore in credit guarantees on bank loans. This is aimed to enhance the global competitiveness of Indian exporters and support diversification into new and emerging markets. By enabling collateral-free credit access under CGTMSE, it will be strengthening liquidity, as also ensures smooth business operations since the tariffs have led to a steep drop in container volume of shipments to US.

Meanwhile, rupee, valiantly defending its levels for weeks, and having appreciation bias in early hours went for a tailspin towards the breaching 89.49 on Friday last.

With RBI making its stance clear that it is not there to defend any level for the local currency, and its rich valuations on REER/NEER matrix, the momentum in offshore NDF could have led to the spike that does not have any structural implications for the strength of the currency. On a BoP basis, India’s current account deficit placed at 0.2 per cent of GDP in Q1. This improvement in CAD was mainly owing to robust services exports and strong inflow of remittances.

Based on the above trends, Ecowrap expects India’s current account to be in deficit mode of 1.8-2.8 per cent of GDP in Q2/Q3 before it will turn into positive side in Q4. For the entire fiscal, SBI’s internal research expects an overall deficit in the range of 1.0-1.3 per cent of GDP. Regarding overall BoP, they expect a marginal deficit of up to $10 billion for FY26.

Thus, even though BOP will turn negative in FY26, the alarm bells that are being sounded regarding its impact on rupee movements seems to be a little overblown at this point. In fact, at an aggregate basis, India’s merchandise trade balance of goods and services has increased very modestly during April-October, even after the tariff meltdown.

Thus, experts see deficit in range of 1.0-1.3 per cent of GDP for the fiscal.