Trade data augurs well in November, still it needs careful monitoring

The goods trade deficit dropped to a 4-month low in November, primarily as gold and silver imports collapsed. However, there was also a broad-based improvement in exports. Tariff-hit sectors have performed better-than-expected so far, with Gems & Jewellery and Textiles seeing flat growth, and Marine Products delivering strong improvement.

While both gold and silver imports expectedly declined sharply, total exports saw an improvement.

Core deficit also fell, with core exports improving sharply and core imports declining. While both Gems & Jewellery and Textiles exports have seen flat growth so far in FY26, Marine Products exports continue to see strong growth. Among major export categories, Electronics continues as a strong growth performer, followed by Drugs and Pharma and Engineering Goods.

The improvement in the export was broad-based, as exports to both US and rest of world rose. This improvement has been led by sharp growth in exports in the last three months after the US tariff imposition. This, asper Emkay, indicates that while Indian exporters may have found new destinations, some transshipments are also taking place.

Services exports, especially software services, are facing headwinds in FY26 from tariff-led global uncertainty, though growth has remained healthy so far.

Recent trade data has also caught the volatility bug, with large swings every month – especially exports, which have held up far better than expected, given the punitive US tariffs. While sustainability of such early trends is still questionable, India has so far managed to evade the worst-assumed tariff outcomes and seems to have diversified its export destinations.

Tariff and trade negotiations and global demand conditions shape medium-term export performance. The commerce secretary’s comments that a US-framework trade deal is “near” reflect potential upside if implemented, as per Infomerics, though actual effects will take time and depend on concessions/market access.

The road ahead should focus on stabilizing import bill volatility, targeted export support where momentum exists and a renewed thrust on Services.

It is important to diversify markets and value-chain upgrading, deepen electronics and advanced manufacturing, and energy strategy to lower oil import intensity. There is no shortcut to moving up the value chain in tradable sectors, trade logistics and digital corridors and thrust on human capital & services scale.

One needs to carefully monitor crude oil and gold prices, services receipts and software exports trends, forex and reserves and progress on trade negotiations. This is important because the underlying structural gap persists. Hence, policymakers should combine short-run measures to stabilise import volatility with medium-term industrial, energy and trade strategies that boost higher-value exports and reduce commodity dependence to move episodic monthly gains into a sustained narrowing of the external gap; otherwise, things could deteriorate again.

Following supply normalisation after the holidays and decreased demand post the festive season, merchandise exports rose and imports declined sharply.

With the increase in the average merchandise trade deficit in October-November, Icra estimates the current account deficit to double in Q3.