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India's record trade deficit of USD 333.2 billion in FY26 is likely to soften in the coming months due to multiple trade agreements signed during the year with various countries, according to a report by Bank of Baroda.

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The report stated that the recent surge in oil prices is expected to correct gradually, and projected the current account deficit at 1.5 to 2 per cent of GDP in FY27, though it flagged downside risks if geopolitical challenges persist further.

Overall Trade Figures for FY26

Merchandise exports rose 0.9 per cent in FY26 to USD 441.7 billion against 0.2 per cent growth in FY25, while imports surged 7.5 per cent to USD 775 billion from USD 721 billion in the previous year. The services surplus rose to USD 213.9 billion from USD 188.8 billion, but the overall trade deficit, including merchandise and services, widened to USD 119.3 billion from USD 94.7 billion in FY25.

Analysis of Key Imports

Gold and silver remained the heaviest pressure points on the import bill. Gold imports grew 25 per cent in FY26 after a 27 per cent rise in FY25, while silver imports surged 151 per cent, reversing an 11.3 per cent contraction in the previous year, driven by higher prices and strong domestic demand.

Electronic goods imports crossed the USD 100 billion milestone, rising 17.9 per cent against 8.5 per cent in FY25, while machinery imports grew 15.8 per cent compared with 9.1 per cent in the previous year.

Non-oil-non-gold imports edged up 10.9 per cent, signalling firm domestic demand.

Oil imports fell 6.5 per cent for the full year despite crude prices surging 58 per cent following the closure of the Strait of Hormuz amid the West Asia conflict. Between April and February of FY26, crude prices had declined 1 per cent on a year-on-year basis, limiting the full-year damage to the oil import bill.

Export Performance Breakdown

On the exports front, electronic goods were the standout performer with 24.2 per cent growth, broadly in line with 24.9 per cent in FY25. Engineering goods growth, however, slowed sharply to 5 per cent from 13.5 per cent, while pharmaceuticals growth moderated to 2.1 per cent from 9.1 per cent. Gems and jewellery contraction narrowed to 5.5 per cent from 8.8 per cent in FY25.

Pulses imports declined 34.4 per cent in FY26 after rising 46.3 per cent in FY25, while edible oil import growth slowed to 12.4 per cent from 16.7 per cent.

Region-wise Trade Dynamics

Region-wise, imports from China rose 16 per cent against 11.5 per cent in FY25, and imports from the United States grew 15.9 per cent from 8.1 per cent. Imports from Russia contracted 13.2 per cent against growth of 4.3 per cent in the previous year, with restrictions on Russian oil cited as a key factor, while import growth from the UAE slowed sharply to 0.7 per cent from 31.9 per cent.

Future Outlook and Risks

The report noted that India's macro fundamentals remain on a stable footing and said the external sector is expected to do much better as geopolitical disruptions iron out, supported by the new trade agreements. However, it cautioned that if disruptions continue and push commodity prices higher, pressure on the current account deficit could intensify.