Clouds Gather Over India's Trade as US Tariff Threat Looms

India's trade landscape is mired in uncertainty as the prospect of reciprocal tariffs by the United States looms large, according to a report by the Union Bank of India. The study forecasts an escalation in the current account deficit (CAD) to 1.2% of GDP by FY26, compared to an estimated 0.9% in FY25.

The report underscores the unpredictability surrounding export prospects due to the looming threat of US tariffs on trading partners. The existing 90-day delay on proposed tariffs offers only temporary respite, as the potential for disruption remains significant.

In April 2025, the merchandise trade deficit skyrocketed to USD 26.42 billion from USD 21.54 billion in March 2025, far exceeding forecasts. The surge is attributed to a sharp rise in imports amid persistent trade upheavals, coupled with a dip in exports.

In trade specifics, while the oil and gold trade deficits narrowed, the non-oil non-gold (NONG) deficit nearly tripled, driven predominantly by imports in chemicals, machinery, and electronics. This trend suggests potential dumping activities affecting trade dynamics.

Despite these challenges in goods trade, India's services sector exhibited resilience, clocking a trade surplus of USD 17.8 billion in April 2025. This performance is seen as a beacon of hope, potentially buffering the nation's current account amid global economic uncertainties. As the services surplus provides some solace, it hints at a balancing force in the face of a daunting fiscal landscape.

(With inputs from agencies.)