India’s merchandise trade deficit narrowed slightly to $26.86 billion in August 2026, compared with $27.2 billion in the same month last year. The improvement came mainly from a sharp decline in imports, particularly gold, even as export growth remained strong.
Merchandise exports rise 26.1 per cent
India’s merchandise exports increased 26.1 per cent year-on-year to $43.81 billion in August, marking the highest export value recorded for the month in at least a decade.
Merchandise imports also increased during the month, rising 14.1 per cent year-on-year to around $70.76 billion. However, the growth in imports was lower than the growth in exports, helping contain the overall trade gap.
Economists had expected India’s merchandise trade deficit to be around $32 billion in August, according to a Reuters poll. The estimate was also close to the $31.98 billion deficit recorded in July.
Gold imports fall sharply
A major factor behind the lower trade deficit was the decline in gold imports. India imported gold worth around $2.3 billion in August, down 57.7 per cent from $5.4 billion recorded in August 2025.
Gold imports also fell sharply from July, when they stood at about $4.16 billion. The July figure had increased after companies built up inventories ahead of the festive season.
The fall in gold imports helped bring India’s total merchandise imports down to around $70.67 billion in August from $76.22 billion in July.
Engineering and other sectors support exports
Export growth continued to receive support from several major sectors, including engineering goods, petroleum products, chemicals and textiles.
According to trade economist Saurabh Agrawal, Indian exporters saw strong demand from markets including the United States, the European Union, BRICS countries and other emerging economies.
India is also working to expand its export markets as it seeks to reduce dependence on individual destinations. The trade agreement with the UK has come into force, while a wider trade pact with the European Union is moving towards implementation. These agreements could provide Indian exporters with greater access to overseas markets.
Goods and services exports remain strong
India’s combined exports of goods and services rose nearly 25 per cent year-on-year to $82.68 billion in August.
The overall trade deficit for goods and services narrowed to $9.41 billion from $11.62 billion in August last year. Growth in engineering and electronics exports contributed to the improvement.
Automobile exports also provided support to the country’s export performance. Vehicle exports increased 22.2 per cent year-on-year to 681,000 units in August, according to data from the Society of Indian Automobile Manufacturers.
The increase was mainly driven by strong exports of two-wheelers and three-wheelers. Passenger vehicle exports, however, declined 17 per cent during the month.
Services continue to post a surplus
India’s services exports remained strong in August, reaching $38.87 billion, while services imports stood at $21.42 billion.
This resulted in a services trade surplus of $17.45 billion, helping offset part of the merchandise trade deficit.
However, higher crude oil prices could put pressure on India’s import bill in the coming months. The country’s crude oil basket averaged $90.19 a barrel in August, compared with $82.04 a barrel in July. The average price had increased further to $109.76 a barrel in September so far, according to government data.
The movement of crude prices, along with trends in gold imports, exports and global demand, will remain important factors for India’s trade balance in the coming months.
