India's merchandise trade deficit decreased to $26.49 billion in August, down from $27.35 billion in July. This narrowing occurred despite new tariffs imposed by the United States on Indian goods. Total goods exports reached $35.10 billion in August, a slight decrease from $37.24 billion in July, marking a nine-month low. Imports also saw a decline, contributing to the narrower deficit.
The US imposed an additional 25% tariff on Indian goods starting August 27, bringing the total tariffs on Indian exports to 50%. These tariffs were a response to India's continued purchases of Russian oil. Exports to the US specifically fell to $6.86 billion in August from $8.01 billion in July.
Despite the decline in exports to the US, overall Indian exports saw a 6.7% increase in August compared to the previous year, with imports decreasing by 10.1%. This was partly attributed to businesses front-loading shipments before the tariffs took full effect. The trade deficit, while narrowed, still exceeded Bloomberg survey predictions of $24.8 billion. Major drivers of export growth in August included electronic goods (25.93%), engineering goods (4.91%), and drugs & pharmaceuticals (6.94%).
Trade talks between India and the US have been impacted by the tariffs, but a US delegation is scheduled to visit India for discussions. India is also actively exploring new markets and pursuing trade agreements with the European Union, with the next round of negotiations set for October 6-10, to reduce reliance on specific geographic markets and mitigate supply chain risks. The government has identified approximately 100 products for enhanced domestic manufacturing to decrease import reliance.
While the trade deficit narrowed in August, economists like Aditi Nayar of Icra anticipate that the 50% tariff on US shipments will likely lead to a sharp dip in overall exports and a potential increase in the trade deficit in September 2025.
