ECOSCOPE : The Macro-Cap : Strong exports drive moderation in trade deficit by Motilal Oswal Financial Services Ltd
Trade deficit narrows in Aug’26
* India’s merchandise trade deficit narrowed to USD26.9b in Aug’26 from USD32.0b in Jul’26, as a sharp acceleration in exports outpaced import growth. Merchandise exports rose 26.1% YoY to USD43.8b, while imports increased 14.1% YoY to USD70.7b. On a cumulative basis, however, the merchandise trade deficit widened to USD147.1b during Apr-Aug’26 from USD123.9b in the corresponding period last year.
* The improvement in August was also visible in the broader external trade balance. Total exports, including services, rose 25.4% YoY to USD82.7b, while total imports increased 18.8% to USD92.1b, narrowing the overall trade deficit to USD9.4b from USD11.6b last year. Cumulatively, the trade deficit stood at USD60.4b during Apr-Aug’26, compared with USD43.9b last year.
Exports remain strong
* India’s goods export growth accelerated to 26.1% YoY in Aug’26 to USD43.8b, from 19.6% in Jul’26, marking a broad-based improvement in export momentum. The key drivers were electronics (+89.8%), petroleum products (+63.3%), engineering goods (+24.9%) and chemicals (+16.4%). In FYTD27, merchandise exports rose 17.9% YoY to USD215.9b.
* Electronics exports stood out in Aug’26, surging 89.8% YoY to USD5.6b, while engineering goods exports rose 24.9% to USD12.3b. Petroleum product exports increased 63.3% to USD6.8b, boosting the headline number. The underlying export performance remained strong. Non-petroleum exports rose 21.0% YoY to USD37.0b, while non-petroleum-non-gems & jewelry exports increased 22.7% to USD34.7b.
* Export growth also strengthened across key destinations. Exports to the US rose 21.8% YoY in Aug’26, while exports to Singapore, Spain and China increased 161.0%, 196.5% and 52.4%, respectively. In Apr-Aug’26, exports to Singapore and China were up 96.6% and 38.7%, respectively, while exports to the US increased 6.2%.
Services provide stronger cushion
* Services exports accelerated sharply, rising 24.6% YoY to USD38.9b in Aug’26, compared with 6.4% growth in Jul’26. Services imports rose 37.4% to USD21.4b, resulting in a monthly services surplus of USD17.5b. During Apr-Aug’26, services exports increased 13.0% to USD183.4b, generating a services surplus of USD86.7b vs. USD79.9b last year.
* The strong improvement in services exports, alongside strong merchandise exports, helped narrow the overall monthly trade deficit to USD9.4b.
Import growth led by electronics and capital goods
* Goods imports rose 14.1% YoY to USD70.7b in Aug’26, moderating from 17.5% growth in Jul’26. The moderation was partly supported by a sharp contraction in gold imports, which declined 57.8% YoY. Imports of several industrial commodities also fell, including iron & steel (-11.7%) and chemicals (-0.5%).
* However, the underlying import picture was firm. Non-petroleum imports increased 10.9% YoY to USD54.0b in Aug’26, while non-petroleum-non-gold imports rose 19.5%. Thus, excluding gold and petroleum, import demand remained relatively strong, consistent with steady domestic economic activity and investment demand.
* Electronics imports (40.5% YoY in Aug’26) remained an important driver, alongside the surge in electronics exports. The continued strength in electronics trade reflects the rapid expansion of India’s electronics manufacturing ecosystem, but also highlights its high import intensity, particularly for components and intermediate inputs.
* Capital goods (13.5% YoY in Aug’26) and machinery imports also remained firm, pointing to stable investment demand rather than a purely consumption-led import cycle. In the near term, strong investment-related imports will keep the merchandise trade deficit elevated.
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