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India's merchandise trade deficit is expected to have reduced modestly in August 2025, according to a report by Union Bank of India.
The report estimated that the trade deficit fell to USD 26.1 billion in August from USD 27.4 billion in July. It stated "Merchandise trade deficit likely narrowed marginally in Aug'25 to USD 26.1 bln vis-a-vis USD 27.4bln a month ago". The report mentioned that modest narrowing was driven largely by a surge in gold demand ahead of the upcoming festive and wedding season. Despite higher prices, gold imports nearly doubled last month, providing a lift to trade activity. On the other hand, commodity prices offered only mild relief. At the same time, the report highlighted that the trade dynamics remained under pressure due to the stalemate in the India-US trade deal. The U.S. accounts for about 20 per cent of India's goods exports, and the lack of progress in the negotiations weighed on outbound shipments. To support domestic industries facing tariff-related challenges, the government recently relaxed norms under the Advance Authorization Scheme, allowing duty-free import of raw materials for export production. This move is aimed at cushioning exporters against the impact of the ongoing 50 per cent U.S. tariff. Looking ahead, the report said the trade deficit is likely to stay elevated in the near term. The outlook is shaped by strong gold imports during the festive season, steady energy demand, and continued dependence on electronics and capital goods imports. Some relief may come from softening global commodity prices and ongoing efforts at import substitution. However, export growth is expected to remain muted amid weak global demand and tariff headwinds. The report also noted that any positive development on the India-US trade deal could offer much-needed support to exports. By reducing tariff barriers, such an agreement would aid export recovery to the U.S., India's key trade partner. While the near-term impact may be limited, the report said the deal could help strengthen India's export base over time, thereby partially offsetting pressures on the trade balance in the quarters ahead. (ANI)
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