India’s Record Trade Deficit May Ease as Oil Prices Cool and Trade Deals Gain Pace: Bank of Baroda Report

The country may experience a respite from the massive trade deficit due to the formation of trade agreements with various nations along with reduced oil prices following an increase in prices. According to Bank of Baroda's research, India's trade deficit was recorded at its highest at $333.3 billion during the financial year 2025-26, attributed to increased imports of gold and silver.

According to the report, the fundamentals of the Indian economy remain strong even in light of global uncertainties caused by the tensions in Western Asia. As the geopolitical challenges are eased and trade agreements receive support from different nations, India's external sector performance is expected to improve significantly. This will not only increase the country's exports, but softening commodity prices will also reduce the import bill and provide relief to the trade deficit. However, if these obstacles persist and commodity prices, including crude oil, rise further, pressure on the country's current account deficit may increase. The government estimates the current account deficit to be between 1.5 and 2 percent of gross domestic product (GDP) in the financial year 2026-27.

According to the report, India exported goods worth $441.7 billion during the 2025-26 fiscal year, representing a growth of just 0.9 percent. This growth was 0.2 percent in 2024-25. Imports also increased from $721 billion to $775 billion. Consequently, the total trade deficit widened to over $333 billion.