Trade deficit narrows even as US tariffs cast shadow on exports

New Delhi: India’s trade deficit narrowed to $26.49 billion in August from $27.35 billion recorded in the previous month due a sharp drop in imports even as the high US tariffs impacted the country’s outbound shipments.

The country’s merchandise exports in August stood at $35.1 billion, which was lower than $37.24 billion recorded in July. However, on a year-on-year basis August export was 6.7% higher.

There was a sharp drop in merchandise imports both sequentially and on a year-on-year basis. Imports dropped to $61.59 billion in August, 10% lower when compared with August 2024 data of $68.53 billion. In July 2025 India’s imports stood at $64.59 billion.

The impact of the high tariff imposed by US President Donald Trump administration on India’s shipment to North America was visible in the August data. The growth in India’s exports to the US slowed to a nine-month low of 7.2% in August from an average 25% recorded in the first seven months of 2025.

The Trump administration imposed 50% tariffs on the majority of goods imported from India. The 25% reciprocal tariffs came into effect at the beginning of August while an additional 25% penalty for India’s economic engagements with Russia was imposed towards the end of the month.

“The penalty is likely to drive down exports to the US materially in September 2025, which should lead to a sharp dip in overall exports, while also pushing up the trade deficit in the month,” said Aditi Nayar, Chief Economist, ICRA.

Briefing the media, Commerce Secretary Sunil Barthwal said the government has taken measures to diversify India’s exports basket. “We have identified around 100 products where domestic capacity exists. By boosting utilisation, we can replace imports, strengthen industry, and reduce vulnerabilities,” he said.

Barthwal said the Ministry of Commerce and Industry will put the identified products list in the public domain by October end. “Our endeavour will be that we identify these products, put them in the public domain so that the manufacturers can look at them. It will give a boost to make in India,” he added.

India’s total exports (merchandise and services combined) rose to $69.16 billion in August, 9.34% higher when compared with the same month last year. Total imports (merchandise and services combined) in August was down by 7% to $79.04 billion in August.

During the period April to August 2025-26, India’s cumulative merchandise exports stood at $184.13 billion, while imports were recorded at $306.52 billion.

The Federation of Indian Export Organisations (FIEO) President S C Ralhan urged the government to enhance support to MSMEs and ensure timely disbursement of export incentives.

Engineering goods exports increased by 4.91% to $9.90 billion in August. On a cumulative basis, engineering goods exports during the April-August period rose by 5.84% to $49.24 billion.

"While the increase in shipments in August shows the industry's resilience, there are early signs of stress, also due to the punitive tariffs imposed by the US," said Pankaj Chadha, Chairman, EEPC India.