India’s merchandise trade deficit remained broadly stable at USD 28.2 bn in May-26 despite a challenging geopolitical backdrop
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Robust export performance offset a rise in imports, leading to a stable merchandise trade deficit. Exports surged to a record USD 45.2 bn, led by engineering goods, petroleum products and a broader diversification of destination markets, while imports were elevated, driven by higher petroleum and fertilizer prices amid lingering Middle East disruptions.
Looking ahead, the emerging de-escalation in the Middle East crisis and the prospective reopening of the Strait of Hormuz offer some relief in containing external-sector risks, although crude oil prices are likely to retain a geopolitical premium relative to pre-conflict levels. Consequently, while export momentum appears increasingly supported by geographical diversification, easing US tariff headwinds and benefits from recent FTA implementation should bear fruit in the coming quarters. For now, assuming an average crude oil price of USD 95 pb for FY27, we project India’s CAD at 1.8% of GDP, up from 0.6% in FY26. We will review our forecast in case of a sustained relief rally, especially with respect to crude price, goes beyond our base case assumptions.