India's trade deficit swells on gold import surge, weak exports
What's the story
India's trade balance took a hit in early 2026, with imports surging while exports remained largely stagnant. The Reserve Bank of India (RBI) Governor Sanjay Malhotra announced this during the monetary policy announcement on Wednesday. He said that India's merchandise exports contracted by a marginal 0.2% year-on-year in January and February due to weak demand from major global markets amid geopolitical tensions.
Import increase
Gold imports widen trade deficit
In stark contrast to the export slowdown, imports witnessed a massive spike of over 22%. This was mainly due to a surge in gold imports, which has considerably widened India's trade deficit. The RBI Governor said that the gap between imports and exports has put pressure on India's external sector, with high gold demand being a key driver for the import surge.
Export challenges
Geopolitical uncertainties, shipping disruptions affect export momentum
Malhotra attributed the weak export performance to a mix of factors, including weakening global demand, contraction in major export destinations, and ongoing geopolitical uncertainties. Disruptions in key shipping routes and higher freight and insurance costs due to the West Asia conflict have further affected export momentum. The RBI also flagged a broader slowdown in global trade in 2026 compared to last year.
Future prospects
Trade agreements may support export outlook
Lingering tariff-related uncertainties, high energy prices, and geopolitical tensions are expected to impact international trade flows. However, the RBI said that India's export outlook could get some support from recently concluded bilateral and regional trade agreements with major partners. These deals, many of which were signed last year, may help mitigate the impact of global volatility over time.