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India's Trade Deficit Widening Delayed by Oil Price Shock, Report Warns

A report from HSBC Global Investment Research indicates that the widening of India's trade deficit has been delayed, not prevented, due to current market conditions. The March goods trade deficit came in at $20.7 billion, lower than February, but this is attributed more to supply constraints than a resolution of the oil price shock. With India heavily reliant on Middle East energy imports and Brent crude prices up 60% year-on-year, a persistent energy shock is likely to widen the deficit in coming months. The report also notes a sharp annual rise in the trade deficit with China and a narrowing surplus with the US.

Key Points: India's Trade Deficit Widening Pushed to Coming Months: Report

  • March trade deficit lower at $20.7B
  • Oil price shock effects delayed, not avoided
  • Gold imports fell sharply in March
  • Full-year FY26 goods trade deficit at $333B
2 min read

India's trade deficit widening due to higher oil prices pushed out to coming months: Report

HSBC report says India's trade deficit widening is delayed, not avoided. High oil prices and Middle East conflict threaten to widen the gap in coming months.

"The trade deficit widening has been pushed out rather than avoided. - HSBC Global Investment Research"

New Delhi, April 16

The trade deficit widening has been pushed out rather than avoided, a report showed on Thursday, adding that if the energy shock persists and Brent oil prices stays elevated, the deficit is likely to widen in the coming months.

India's goods trade deficit came in at $20.7 billion in March, much lower than last month's $27 billion deficit. The March deficit is usually slightly narrower, but markets expected it to widen this time as Brent is up 60 per cent YoY due to the Middle East conflict, said the HSBC Global Investment Research report.

Oil import bill came in lower than February, suggesting that March reflects supply/availability constraints more than a price shock.

"India buys about half of its energy needs (45 per cent of crude oil imports, 60 per cent of LNG imports, and 80 per cent of LPG imports) from the Middle East," the report mentioned.

Oil exports rose to sharply (up 50 per cent on monthly basis). This rise in oil exports also explains the sharp upward revision in windfall taxes imposed by the government to ensure adequate availability of these fuels for domestic consumption.

Duties on export of diesel and ATF were revised up to Rs 55.5 per litre and Rs 42 per litre on April 12.

Gold imports fell sharply ($3.1 billion in March against an average import bill of $10 billion in Jan-Feb).

On a full year basis, India's trade deficit was at $333 billion in FY26 (compared to $283 billion in FY25) while the services trade surplus was at $214 billion (compared to $189 billion in FY25).

FY26 started with tariff related headwinds and ended with an oil shock, alongside a sharp rise in gold imports. India's goods trade surplus with the US narrowed to $34 billion (vs $41 billion in FY25).

While India's exports to China were clocking a healthy uptick, imports were growing even faster. As a result, India's trade deficit with China widened further ($112 billion vs $99 billion in FY25), said the report.

- IANS

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Reader Comments

P
Priya S
The windfall tax on fuel exports makes sense to keep prices stable here. But the widening deficit with China is more concerning. We import so much electronics and machinery from them. We need to boost our own manufacturing.
R
Rohit P
Gold imports fell sharply in March? That's surprising, but a good thing! Maybe people are finally investing in other assets. The trade numbers are complex, but the services surplus is a bright spot. Our IT sector is carrying the weight.
A
Aditya G
Higher oil prices will eventually hit the common man through inflation. Petrol and diesel prices have been stable, but for how long? The government is absorbing the shock now, but it can't last forever.
S
Sarah B
Interesting analysis. The report suggests the March deficit was lower due to supply constraints, not lower prices. So the problem is just delayed. The geopolitical risk in the Middle East directly impacts India's economy. A tough balancing act for policymakers.
K
Karthik V
With respect, I think the focus is too much on oil. The deficit with China widening to $112 billion is the elephant in the room. We need to reduce this dependency urgently. PLI schemes need to show results faster.
N
Nisha Z
The numbers are a bit confusing for a layperson like me.

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