India's export boom shadowed by widening trade deficit, say experts

India's exports show strong growth and resilience despite global challenges. However, experts highlight concerns over rising imports and a widening trade deficit, which could pose a challenge to the external sector in the coming quarters.

India's strong export growth despite global trade and geopolitical headwinds reflects the resilience and diversification of its exporters, but rising imports and a widening trade deficit could pose a challenge to the external sector in the coming quarters, industry representatives and economists said.

Concerns Over Widening Deficit

ICRA Chief Economist Aditi Nayar said merchandise exports and imports expanded in double digits for the fourth consecutive month in July, with higher commodity prices contributing to the rise in trade values. Merchandise imports touched a nine-month high, driven by more than 20 per cent growth in coal, fertilisers, electronic goods and chemical materials and products.

The merchandise trade deficit widened to a six-month high of USD 32 billion in July from USD 27.9 billion a year earlier, Nayar said, while also exceeding the average monthly deficit of USD 29 billion recorded in the first quarter of FY27. "While we expect a marginal CAD of ~0.2% of GDP in Q1 FY2027, the same is expected to widen sharply to ~2.0% of GDP in Q2 FY2027," Nayar said. She expects the current account deficit to stand at around 0.9 per cent of GDP for the full financial year, which she said is likely to be comfortably financed amid measures to attract capital flows.

Exporters Show Resilience

The assessment comes even as merchandise exports rose 19.63 per cent year-on-year to a record USD 44.24 billion in July, according to government data. Engineering goods exports grew 17.8 per cent year-on-year to USD 12.24 billion in July and 18.2 per cent to USD 46.38 billion during April-July, with engineering exporters adapting to emerging challenges by diversifying their products and markets, EEPC India Chairman Pankaj Chadha said.

Commenting on the ongoing West Asia crisis, he said, "We are hopeful of navigating the crisis and registering positive growth in the coming months." "The positive impact of the India-Oman free trade pact is already visible, and the free trade pact with the UK is expected to give a further push to exports. Together, they would partly offset the negative trend seen in some of the traditional markets," he added.

Calls for Continued Policy Support

FIEO President S C Ralhan said the export performance demonstrated the resilience and adaptability of Indian exporters despite trade challenges, shipping disruptions and higher transportation costs. "The over 19 per cent growth in merchandise exports in July is an outstanding achievement and a strong testimony to the resilience, competitiveness and adaptability of Indian exporters," Ralhan said.

He said non-petroleum exports rose 12.79 per cent during April-July, with engineering, electronics, pharmaceuticals, chemicals and textiles contributing to the momentum. He also called for greater focus on MSMEs and labour-intensive sectors to translate export growth into wider economic benefits.

Ralhan further called for continued policy support, competitive export credit, easier working capital, faster trade facilitation and attention to shipping and logistics challenges. He also stressed the need for greater market and product diversification as global trade conditions remain uncertain. (ANI)

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