India’s total exports of merchandise and services reached a record $232.73 billion in the first quarter of FY27 (April to June 2026), marking an 11.37% increase over the same period last year, according to data released by the Ministry of Commerce and Industry. However, total imports surged at a faster pace of 17.55% to $270.15 billion, pushing the combined trade deficit to $37.42 billion from $20.85 billion a year ago. The data highlights the resilience of India’s export sector amid global geopolitical turmoil even as rising crude oil and commodity imports put pressure on the country’s external account.
Q1 Trade Data: A Bird’s Eye View
The trade data for April-June 2026, released by the Ministry of Commerce and Industry on July 13, 2026, provides a comprehensive picture of India’s external sector performance in the first quarter of the financial year. The numbers are compiled and disseminated by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), a subordinate office under the Ministry of Commerce headquartered in Kolkata. DGCI&S is responsible for collecting, processing and publishing India’s merchandise trade statistics, following the International Merchandise Trade Statistics (IMTS) 2010 manual of the United Nations Statistics Division.
Merchandise exports performed strongly during the quarter, rising 15.92% year on year to $129.32 billion, compared with $111.57 billion in Q1 FY26. Merchandise imports climbed 19.89% to $216.18 billion from $180.31 billion a year earlier, resulting in a merchandise trade deficit of $86.86 billion, up from $68.75 billion in the corresponding period of the previous fiscal.
On the services side, estimated exports grew 6.16% to $103.41 billion during the quarter, while services imports stood at $53.97 billion. The services trade surplus came in at $49.43 billion, providing a significant cushion against the merchandise trade gap. After accounting for both merchandise and services, the overall trade deficit stood at $37.42 billion.
For the month of June 2026 alone, merchandise exports were $40.41 billion (up 15.5% year on year), while merchandise imports surged 31% to $70.84 billion, pushing the monthly merchandise trade deficit to $30.43 billion, a five-month high. Including services, total monthly exports were estimated at $73.45 billion and total imports at $88.76 billion, resulting in a combined deficit of $15.32 billion.
Merchandise Exports: Engineering and Electronics Lead the Way
The growth in merchandise exports during Q1 FY27 was broad-based, with several key sectors posting double-digit increases. Engineering goods remained the single largest contributor to exports, rising 20.74% year on year to $11.48 billion in June 2026 alone, up from $9.51 billion in June 2025. Electronic goods exports grew 18.93% to $4.93 billion in June, driven largely by the Production Linked Incentive (PLI) scheme for electronics manufacturing, which has boosted India’s capabilities in mobile phones, components and IT hardware.
Gems and jewellery exports recorded the highest growth among major sectors in June, surging 34.64% to $2.41 billion from $1.79 billion a year earlier. Organic and inorganic chemicals exports rose 19.42% to $2.77 billion, while rice exports increased 16.48% to cross the $1 billion mark for the month. Non-petroleum exports for the quarter reached $106.30 billion, up 12.44% year on year, signalling strength in value-added manufacturing beyond the traditional oil and gas segment.
On the destination front, exports to several markets outside the traditional Western economies recorded strong growth. During the April-June period, Singapore, Tanzania, South Africa, Sri Lanka and China registered the highest growth in imports from India. This reflects the success of India’s market diversification strategy, which has been a key pillar of the Foreign Trade Policy (FTP) 2026-31, unveiled on May 20, 2026, with a target of $2 trillion in goods and services exports by 2030.
Imports Surge Widens the Trade Deficit
While exports posted healthy growth, imports grew at an even faster clip during the quarter, widening India’s trade deficit significantly. Merchandise imports in Q1 FY27 rose 19.89% to $216.18 billion, with the merchandise trade deficit expanding to $86.86 billion from $68.75 billion in the same period last year.
The sharp rise in imports was driven largely by three categories: crude oil, electronics and gold. Crude oil imports jumped 40% year on year to $19.32 billion in June, reflecting elevated global crude prices and India’s heavy dependence on imported energy. The geopolitical turmoil in West Asia, including the temporary closure of the Strait of Hormuz, had pushed up crude prices earlier in the quarter. However, the US-Iran Memorandum of Understanding signed in June 2026 led to a correction in prices, with Brent crude averaging around $85 per barrel in June compared to $107 per barrel in May.
Electronics goods imports surged 58.77% to $13.36 billion in June, touching a record high. This was driven by rising domestic demand for smartphones, semiconductors and capital goods for electronics manufacturing. The electronics trade deficit widened to a record $8.4 billion during the month, underscoring India’s continued dependence on imported components despite the growth in domestic assembly.
Gold imports in June declined 42% month on month to $2 billion, after the government raised the import duty to 15% and capped duty-free imports for jewellery exporters. For the full quarter, however, gold imports stood at $11.01 billion, up from $7.49 billion in Q1 FY26. Other items that saw substantial import growth included fertilisers (which more than tripled) and non-ferrous metals.
On the source side, Russia, China, Oman, the United States and Brazil recorded the highest import growth during the quarter. Imports from China alone rose to $38.04 billion in Q1 FY27, up from $29.73 billion a year ago, highlighting India’s growing dependence on Chinese intermediate goods and electronics components.
Services Sector Provides a Crucial Buffer
India’s services sector continued to be a pillar of strength for the external account. Estimated services exports for Q1 FY27 stood at $103.41 billion, up 6.16% from $97.41 billion in the same period last year. Services imports during the quarter were contained at $53.97 billion, resulting in a services trade surplus of $49.43 billion, compared with $47.90 billion in Q1 FY26.
This surplus helped absorb more than half of the merchandise trade deficit of $86.86 billion, bringing the overall combined trade deficit down to a more manageable $37.42 billion. Software and IT services, business process outsourcing, and professional services remained the key contributors to services exports.
However, there were some signs of moderation. In June 2026, services exports grew only 2.9% year on year to $33.03 billion, while services imports rose 12.7% to $17.92 billion, narrowing the monthly services surplus to $15.11 billion from $16.2 billion a year earlier. This deceleration has been attributed to global headwinds facing the IT sector, including the impact of artificial intelligence on traditional outsourcing models and slower spending in key markets like the US and Europe.
Geopolitical Currents and Trade Agreements
The Q1 trade performance unfolded against a backdrop of significant geopolitical turbulence. The West Asia conflict and the closure of the Strait of Hormuz earlier in the year had disrupted shipping routes and pushed up energy costs. India’s exports to the Gulf region initially suffered but recovered to pre-disruption levels by May 2026, with exports to the region rising 7.29% to $5 billion in June. Indian exporters adapted by using alternative ports in Oman including Duqm, Sohar and Salalah to reroute shipments.
Exports to the United States, India’s largest single country export destination, saw a marginal decline of 1.21% to $8.17 billion in June. However, the reduction in US tariffs following a Supreme Court ruling in February 2026 provided some support. Broader export growth was driven by diversification into new markets across ASEAN, Africa and South Asia.
On the trade agreement front, India made notable progress. A Free Trade Agreement with the United Kingdom took effect in July 2026, opening new market access for Indian goods and services. Negotiations for a comprehensive trade agreement with the European Union are expected to conclude by early 2027. India also signed trade pacts with Oman and New Zealand during this period, expanding its network of preferential trade partnerships.
The Road Ahead for India’s External Sector
The Q1 trade data presents a mixed picture. On one hand, the double-digit growth in exports demonstrates the underlying competitiveness of Indian manufacturing and services. The Foreign Trade Policy 2026-31, with its focus on ease of doing business, market diversification and support for MSMEs, provides a strong policy framework for sustaining this momentum.
On the other hand, the widening trade deficit raises concerns about the external sector outlook. Rising crude oil and commodity prices remain the single biggest risk. Several rating agencies and economists have revised their projections for India’s current account deficit (CAD) for FY27. Crisil expects CAD to widen to 1.5% of GDP from 0.6% in FY26. SBI Research has projected a range of 1.5% to 1.7%, while ICICI Bank estimates CAD at 1.8% of GDP. These projections assume an average Brent crude price of $80 to $90 per barrel for the fiscal year.
The widening electronics trade deficit and growing import dependence on China are structural concerns that require sustained policy attention. The government has responded by expanding the PLI scheme to more sectors, promoting domestic semiconductor manufacturing under the India Semiconductor Mission, and urging states to identify import substitution opportunities.
On a positive note, the Reserve Bank of India’s measures to attract foreign currency inflows, including the relaxation of norms for FCNR(B) deposits and the introduction of swap windows for foreign currency borrowings, are expected to keep the balance of payments in surplus despite the wider CAD. This should help stabilise the rupee and maintain adequate foreign exchange reserves.
Key Takeaways
- India’s total exports (merchandise and services) reached a record $232.73 billion in Q1 FY27, up 11.37% year on year, while total imports stood at $270.15 billion, resulting in a combined trade deficit of $37.42 billion.
- Merchandise exports grew 15.92% to $129.32 billion, led by engineering goods ($11.48 billion in June), electronic goods ($4.93 billion), and gems and jewellery ($2.41 billion, up 34.64%).
- Merchandise imports rose 19.89% to $216.18 billion, driven by a 40% surge in crude oil imports ($19.32 billion in June) and a 58.77% jump in electronics imports ($13.36 billion in June).
- Services exports grew 6.16% to $103.41 billion, generating a services trade surplus of $49.43 billion that offset more than half of the merchandise trade deficit.
- The Merchandise trade deficit for Q1 FY27 was $86.86 billion, up from $68.75 billion in Q1 FY26, with the monthly deficit hitting a five-month high of $30.43 billion in June 2026.
- India’s current account deficit (CAD) for FY27 is projected to widen to 1.5% to 1.8% of GDP by various agencies, up from 0.6% in FY26, primarily due to higher crude oil and commodity prices.
