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* India’s merchandise trade deficit widened to USD30.2b in Sep’26 from USD26.9b in Aug’26. The increase was mainly led by a rise in oil deficit (USD12.1b in Sep’26 vs. USD9.9b in Aug’26). Merchandise exports rose 23.1% YoY to USD44.4b, while imports increased 8.0% YoY to USD74.6b. During Apr-Sep’26, the cumulative merchandise trade deficit widened to USD177.7b from USD156.9b in the corresponding period last year.

* The widening deficit reflects elevated crude oil prices and robust domestic demand. While oil imports rose 30.7% YoY, non-oil, non-gold imports increased 19.9% YoY to a record USD54.5b in Sep’26, indicating steady demand for machinery, electronics and other industrial inputs. The sharp decline in gold imports (-81.3% YoY) partly offset the increase in the overall import bill.

Non-oil export growth hits two-year high

* India’s merchandise exports rose 23.1% YoY to USD44.4b in Sep’26, supported by strong growth in both oil (+32.1% YoY) and non-oil exports (+21.7% YoY). Non-oil exports increased to USD38.2b, recording their strongest growth in two years. Electronics exports surged 70% YoY, followed by engineering goods (+21%) and chemicals (+14%). Plastics and rubber, gems and jewelry, textiles, marine products, agricultural products and leather also contributed to growth. However, exports of ceramics and glassware (-16%) and ores and minerals (-6%) declined.

* Geographically, exports to the US, EU, ASEAN and North Asia improved, while shipments to the Middle East remained under pressure.

* Services exports moderated, with gross services exports contracting 0.9% YoY to USD36b in Sep’26. Services imports increased 8.9% YoY to USD19b. Net services exports stood at USD16.9b in Sep’26. During Apr-Sep’26, net services exports grew 4.0% YoY to USD103b, providing a cushion to the widening merchandise trade deficit.

Import growth led by oil, electronics and capital goods

* Merchandise imports grew 8.0% YoY to USD74.6b in Sep’26, compared with 14.1% growth in Aug’26, as a sharp decline in gold imports partly offset the increase in oil and non-oil, non-gold imports.

* Oil imports increased 30.7% YoY to USD18.3b, reflecting elevated global crude oil prices. Non-oil, non-gold imports grew 19.9% YoY to a record USD54.5b in Sep’26, indicating stable domestic demand and industrial activity.

* Gold imports plunged 81.3% YoY to USD1.8b in Sep’26, partly reflecting lower gold prices and increased domestic recycling.

* Within non-oil, non-gold imports, electronics recorded strong growth of 51% YoY in Sep’26, while ores and minerals (+35%), plastics and rubber articles (+21%), and agricultural products (+16%) also registered healthy growth. Capital goods imports rose 14% YoY, led by machinery (+16%) and transport equipment (+18%), pointing to continued demand for investment-related goods.

* Overall, goods and services imports rose 8.2% YoY to USD94b in Sep’26, taking cumulative imports to USD551b during Apr-Sep’26, up 16% YoY.

* Going ahead, stable domestic demand, high crude oil prices and continued strength in non-oil, non-gold imports are likely to keep the import bill elevated and exert pressure on the merchandise trade balance.

Expect CAD at 1.4% of GDP in FY27

* India’s current account deficit (CAD) narrowed to USD5.2b in Aug’26 from USD6.1b a year ago. However, the cumulative CAD widened to USD18.3b during Apr-Aug’26 from USD12.8b in the corresponding period last year, reflecting a larger merchandise trade deficit. The overall balance of payments remained in surplus at USD58b, supported by strong banking capital inflows and improved net FDI inflows, although FPI outflows of USD3.7b and net external commercial borrowing outflows of USD28.3b partly offset these gains.

* Going ahead, high crude oil prices and a widening non-oil, non-gold deficit are likely to keep the merchandise trade deficit elevated. Assuming crude oil prices average around USD90/bbl in FY27, we estimate CAD at USD56b (1.4% of GDP), which is easily manageable. While capital inflows have supported the external balance, their sustainability remains important amid persistent portfolio and external borrowing outflows.

* INR remains under depreciation pressure, weighed by dollar strength, high US yields and persistent FII outflows amid a risk-off global backdrop. However, the recent RBI measures to manage dollar demand and curb INR volatility could provide near-term support to the currency. We expect USD-INR to average around 96 in FY27.

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