An analysis of India’s trade data for FY26 reveals the continuing trend of a widening trade deficit. Merchandise trade deficit widened to US$333.2 billion in FY 26 — up from US$283.5 billion of the previous fiscal. Services continued to do well showing a surplus of US$213.9 billion. The overall trade deficit (merchandise and services) settled at US$119.3 billion up from US$94.7 billion. This is a reflection of the global uncertainty which dogged most of last year triggered by Trump’s reciprocal tariffs and the subsequent geo-political developments.
Electronic goods were the major item of export; it grew at 24.2%. Engineering goods too did well though it recorded a slower growth at 5% as compared to last year. Drugs and pharma rose marginally, gems & jewellery contracted, chemicals remained steady, oil exports declined. Oil imports also fell, as the result of the US imposed restrictions on Russian imports and the stress in the Middle East. Electronic imports shot up-above US$ 100 billion for the first time. Imports of machinery also rose.
But the major item of import with a 25% growth was gold with domestic demand (Akshaya Tritiya saw record sales) continuing to drive the steep increase. The regular, daily seizures of gold across all airports are an indication that smuggling continues to also cater to the domestic demand. Earlier this month the Directorate of Revenue Intelligence (DRI) busted yet another gold smuggling syndicate in Mumbai and seized ₹
6 crore worth of bullion. Silver imports too rose on the back of volatile prices by a humongous 151%.
The profile of countries with whom trade has taken place reflected the evolving geopolitical dynamics. Imports from China (16% from 11.5%) and US (15.9% from 8.1%) has grown a lot more, while import growth has fallen significantly from UAE (0.7% from 31.9%) and Russia (-13.2% from 4.3%). The restriction of oil imports from Russia obviously being the reason. On the other hand, exports to UAE and US have been lower, while export growth to China (36% from -14.5%) has risen significantly in FY26. US and UAE continue to be the two export destinations with the largest share in total exports.
India’s not so impressive export performance raises the larger question — how do we improve our export performance? Are Free Trade Agreements (FTA) the way forward to do so?
Exports do not happen in a vacuum. They are the result of an economy where there is political stability, credit is easily available for companies to raise working capital, where there is unhindered power supply, where the law is well settled and there is certainty, where bureaucracy is in sync with the requirements of business and decisions taken quickly, where logistics costs are low, where the economic landscape lays emphasis on ease of doing business, where global quality standards are met and on a government which steps in to support exports when required. Such an economy grows at a healthy rate-and exports also flourishes.
Given such a domestic environment what an FTA does is to open the markets for business. It gives access to new geographies, reduces tariff barriers, helps domestic industry participate in the global value chain. It also forces domestic industry to face competition for any FTA is a two-way street. It also permits imports at preferential rates from trade partners eager to exploit the huge Indian market.
It is in this background that we would need to review how the new tranche of FTAs will pan out. Our experience in the first lot of FTAs— ASEAN, Japan, South Korea, Singapore, Thailand, Malaysia was not good. Imports from ASEAN countries rose by 82%
