Gold Imports Slash India's Trade Deficit, But Oil Risks Loom

"Merchandise trade deficit narrowed to $27.1bln in Feb'26 from the unexpected widening of $34.7bln in Jan'26," the report said, adding that the moderation was "marking an improvement in imports."

The report highlighted that imports declined significantly across key segments. "Imports fell significantly, resulting in narrowing in the merchandise trade deficit, led by Gold (down ~40% MoM), NONG (~19% dip) and Oil (~1% slip)," it said.

Despite global trade tensions, exports remained steady. "The data clearly highlights that exports (both for goods & services) have remained resilient in FY2026 despite trade tensions and tariff truce," the report noted.

Breaking down the components, the report said, "gold deficit moderated to $7.78bln vis-a-vis $12.96bln in Jan'26," while "non-oil non-gold deficit also moderated due to seasonal normalization to $9.78bln vis-a-vis $12.09bln," driven by improvement in volatile sub-segments like machinery, chemicals and metals.

The oil deficit, however, remained elevated. "Oil deficit remained elevated with a marginal correction with the latest number at $9.54bln compared to $9.63bln the previous month," it said, pointing to continued strong energy demand.

On services, the report noted a strong surplus providing support to the external balance. "Services trade surplus jumped to $23.15bln in Feb'26 and continues to provide a buffer for C/A dynamics," it said.

As a result, the overall trade gap narrowed. "Total trade deficit (goods and services combined) moderates to single-digit levels in Feb'26, to $3.95bln vis-a-vis $13.15bln last month," the report added.

The report identified gold as the key driver behind the narrowing deficit. "Gold was the prime driver in narrowing of trade deficit," it said, noting that "Demand for physical gold in India softened this week as sharp price volatility linked to the escalating Middle East conflict discouraged buyers."

On oil imports, the report highlighted diversification trends. "India's crude imports hit a record 5.3mb/d in February, driven by higher arrivals of non-Russian crude, mainly from the Middle East," it said.

Looking ahead, the report warned of potential risks due to rising commodity prices amid geopolitical tensions. "We expect the trade deficit to widen as escalating West-Asia War is putting pressure on higher commodity prices--particularly oil," it said.

It also underlined the sensitivity of India's external balance to oil prices. "Every $10/bbl. move in oil price affecting annual C/A balance by close to $15bln," the report noted.

However, services exports are expected to provide some cushion. "Elevated services exports provide a cushion against oil price spike," it added, while cautioning that "risks to the current account to remain elevated with the pressure of import shocks driven by commodity volatility."

- ANI