New Delhi, July 16 -- India's widening merchandise trade deficit in June reflects an import-led expansion rather than weakening export competitiveness, with higher oil imports accounting for nearly half of the monthly deficit, according to an analysis by Equirus Securities.
The research notes that merchandise exports remained healthy during June, but imports continued to outpace exports. Merchandise exports rose 15.5 per cent year-on-year to $40.4 billion, while imports increased 31 per cent to $70.8 billion, widening the merchandise trade deficit to $30.4 billion from $28.2 billion in May and $19.1 billion a year ago. During the first quarter of FY27, the merchandise trade deficit reached $86.8 billion, around 28 per cent higher than the corresponding period last year, as stronger domestic demand and commodity price pressures kept imports elevated.
According to the report, petroleum imports remained the principal driver of the wider trade deficit. Petroleum, Oil and Lubricants (POL) imports increased 40 per cent year-on-year to $19.3 billion, while the net oil deficit rose 55 per cent to $14.4 billion, contributing nearly half of the merchandise trade deficit in June. Fertiliser imports also increased sharply ahead of the Kharif season, reflecting stronger demand and higher global fertiliser input prices.
Gold imports moderated to $2.0 billion, declining 42 per cent month-on-month as both global prices and demand softened. After adjusting for the correction in gold prices, implied import volumes contracted by around 35 per cent during the month.
However, the non-oil, non-gold trade deficit widened to $14.0 billion, up 77 per cent year-on-year, indicating that underlying consumption and re-export demand remained firm.
The report identifies electronics as one of the strongest performing export categories during the month. Engineering goods exports increased 20.7 per cent year-on-year, gems and jewellery exports rose 34.6 per cent, chemicals exports grew 19.4 per cent and electronics exports increased 18.9 per cent. According to Equirus Securities, India's position as the chosen substitute to China in the electronics supply chain continues to strengthen. Readymade garment exports, however, declined 11.3 per cent year-on-year and continued to face the impact of disruptions across GCC markets, which account for around 11 per cent of India's apparel exports.
The research also notes that the services cushion is moderating. The services surplus eased to $15.1 billion in June from $21.5 billion in January 2026. Services exports grew by around 3 per cent during June and declined 1 per cent sequentially, while average services export growth during the first quarter of FY27 moderated to 6 per cent from 10 per cent in the corresponding period last year.
On the geographical front, exports to the United States remained broadly flat during the first quarter of FY27, while exports to Vietnam, China and Indonesia recorded strong growth. According to the report, the spillover from the West Asia crisis remained evident, with exports to Iran, Kuwait and Qatar declining sharply, while exports to the UAE and the Netherlands, both important re-export hubs, also moderated. The report notes that the shift towards Asian markets is increasingly being driven by manufacturing exports, including smartphones to China, engineering products to Vietnam and pharmaceuticals to Indonesia.
Looking ahead, Equirus Securities believes that lower global crude prices could reduce pressure on the oil import bill if prices remain around current levels. Softer gold imports could provide additional support. Mpost
Published by HT Digital Content Services with permission from Millennium Post.