India received a rude shock in October for its external trade performance.
Merchandise exports at $34.4 billion contracted by about 12 percent, whereas imports at $76.1 billion shot up by 16.6 percent, resulting into the highest monthly merchandise trade deficit of $41.7 billion — 59 percent higher than deficit of $26.3 billion a year before.
Services though continued to gain strength and at $38.4 billion, outpaced merchandise exports comfortably. Yet, its surplus of $19.9 billion could not wipe out merchandise trade deficit, resulting into India suffering a combined trade deficit of $21.8 billion — 141 percent higher than October 2024 deficit of $9.1 billion.
India’s trade performance in first six months was not bad. Despite October shock, India’s total trade deficit at October end (after seven months) has marginally deteriorated from $69.9 billion in 2024 to $78.2 billion in 2025.
The big question is about India’s trade performance in times to come. Is October shock a one-off event? Or is this a portent of bad things to come? Can India get its act together and contain damage?
Old Industrial Exports Collapse as Imports Surge
It is useful to divide India’s merchandise trade into five baskets: agriculture, old industrial goods, new industrial goods (primarily electronic goods, solar energy products, and chips), gold and other precious metals/stones and energy products (oil, coal etc).
Services trade can also be better understood in terms of another fivefold basket: information technology, education and health, financial, transportation, and personal services.
India is now an established and stable exporter of agriculture goods and products, despite occasional bans on wheat and rice exports generating close to $40-50 billions of exports every year.
India’s structural import dependence is also limited to edible oil, pulses, and dry fruits, with agricultural imports being far smaller than exports. With steady export surplus, there is not any material concern for agriculture trade.
October export-import data suggest massive melt-down in exports of old industrial goods. Organic and inorganic chemicals are down 21 percent, engineering goods by 17 percent, and plastic and linoleum by 22 percent. Cotton and manmade textile exports, meanwhile, fell by 13 percent.
Imports of many traditional industrial goods, however, witnessed significant increase. Fertilisers went up by 87 percent, machine tools by 17 percent, electrical and non-electrical machinery by 12 percent and project goods by 46 percent.
India is not a major participant in global value chains of most old industrial goods. It has huge import dependence as well. There are no products which the world needs to necessarily import from India. Worsening of trade balance in old industrial goods is likely to last long.
Electronics Shine, But Import Dependence Deepens
India’s electronic goods export at $3.6 billion witnessed impressive 19 percent growth in October. None of other new industrial goods (solar machinery, chips etc) find mention even in its top 30 exports.
On the contrary, India has enormous import dependence for these products. Electronics goods import ($9.6 billion) increased by another 15 percent. Machinery electrical and non-electrical, which include solar cells and modules, at $5.2 billion, went up by 12 percent in October.
India’s electronics exports growth seem to be slowing. While October recorded growth of 19 percent, seven months growth is much higher at 37.8 percent.
As exports of Apple iphones mature and Production Linked Incentive (PLI) on large electronic products gets wound-up, there will be downward pressure on electronics goods export growth.
Energy, Gold Imports Push Trade Gap Wider
India is a large importer of both petroleum products and coal.
Falling international prices of both these products are reflected in reduced imports in value of petroleum products ($106.9 billion) and coal ($16.3 billion) for seven months. Yet, petroleum imports are down by only 4.5 percent. Export of petroleum products (34.4 billion) fell sharply (16.3 percent).
With renewable energy transition moving at slower pace, India’s dependence on energy imports is unlikely to go away. India’s fascination for gold has not seen any moderation, despite gold prices shooting up by more than 50 percent in 2025.
India imported $14.7 billion worth of gold in October, at par with petroleum products ($14.8 billion) rising by 200 percent over last year. For seven months, gold imports are up by 21.4 percent and silver ($2.7 billion) by 528 percent.
International gold and silver prices seem to be settling at high levels raising serious concerns about its impact on India’s trade balance. India’s gems and jewellery exports ($2.3 billion), despite rise in underlying gold prices, witnessed 29.5 percent fall in October.
With Trump tariffs severely hurting India’s gems and jewellery, this basket seems poised to hit India’s external trade balance quite badly.
IT Dependence Is a Risk
Services exports continue to do well.
In October, services exports recorded confidence boosting 11.9 percent growth, and in seven months, of 9.8 percent. Services imports ($118.9 billion), about 50 percent of services exports, recorded much smaller growth of 3.4 percent.
India’s services exports are hugely dependent on information technology services (more than 60 percent). A structural change is underway in terms of technology and immigration policies. While global capability centres (GCCs) exports are growing well, traditional business process outsourcing (BPO) and other IT services exports are slowing down/declining.
With artificial intelligence, auto-programming, and IT capabilities rising all over, IT services exports are unlikely to maintain a good growth over a longer time-frame. India has an excessive US dependence problem as well.
India has not got its act together in other services exports — travel, education, and transport —where our exports remain highly subdued whereas imports keep growing. While India’s edge in services exports seems secure for some years, its moderating growth will impacts its surplus.
India Needs Bold Trade Reforms
Quite a few fundamental reforms and measures are needed
Let us conclude long-pending foreign trade and investment agreements/treaties with US, EU, and also China, which can transform India into a production and export powerhouse for new industrial products (including automobiles).
We need to strengthen our services export edge by opening up education, health, accounting, legal, and personal services. Travel and transport infrastructure and services have to be thoroughly overhauled.
If we simply keep skidding from one negotiation to another without completing deals and don’t undertake bold reforms, India’s merchandise exports will remain stagnant for many years like during 2014 and 2018.
India’s merchandise trade deficit, almost $200 billion for seven months, might end-up between $350-$400 billion in 2025-26 and overall trade balance, at $78 billion, might touch $125-$150 billion. Our external trade vulnerability and weakness would remain un-mended structurally, perpetuating poor trade outcomes for years to come.
(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including 'The $10 Trillion Dream Dented, 'We Also Make Policy', and 'Explanation and Commentary on Budget 2025-26'. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)