India's Trade Deficit Under Pressure Amid US Tariff Wars

India's trade deficit is projected to be challenged as strong domestic consumption keeps imports high. Crisil warns of potential export pressures due to US economic conditions. While services trade offers resilience, risks from US tariffs and global slowdown may impact India's fiscal 2026 trade dynamics.

In the fiscal year 2026, India's merchandise trade deficit is anticipated to face significant pressure due to persistent strong domestic private consumption, which is expected to keep imports high, according to a recent report by the rating agency Crisil.

The report highlights that India's exports could also encounter challenges from a slowing global economy and tariff-related conditions, particularly within the United States.

Meanwhile, the services trade, where India maintains a surplus, is projected to offer some resilience. As global growth decelerates, with S&P Global projecting a decrease from 3.3% in 2024 to 3.0% in 2025, India's largest export market, the US, is expected to see reduced economic growth at 2.0% compared to 2.7% previously.

Additionally, the global trade volume growth is also anticipated to moderate according to the United Nations, potentially impacting overall trade dynamics. India's higher tariffs and trade surplus position make it susceptible to the ongoing tariff wars initiated by the US, with American tariffs on imports from India being lower at 3% compared to India's 9.5%.

Despite these challenges, Crisil Intelligence predicts India's real GDP growth will stabilize at 6.5% for fiscal 2026, provided that factors such as normal monsoon conditions and soft commodity prices continue to stabilize food prices amid geopolitical and tariff-related uncertainties.

(With inputs from agencies.)