India's Merchandise Exports Face Mounting Challenges
India's merchandise exports are likely to encounter increasing pressure in the coming months. This pressure stems from ongoing uncertainty surrounding the proposed US-India trade deal. Growing concerns about possible additional US levies connected to India's crude oil purchases from Russia further complicate the situation. Ratings firm CRISIL highlighted these challenges in its latest assessment.
Trade Deficit Widens as Export Growth Slows
The report reveals a significant widening of India's merchandise trade deficit. It reached $25 billion in December 2025, a sharp increase from $20 billion recorded a year earlier. This expansion occurred because export momentum remained weak relative to imports. Export growth to key international markets has also decelerated noticeably.
Shipments to the United States, India's largest export destination, rose by just 1.8 percent year-on-year in December. Exports to other regions increased at an even softer pace. The US position as the top market was maintained primarily due to rising smartphone shipments, which provided some support.
Specific Agri-Export Segments Under Stress
CRISIL warned that near-term stress could emerge in select agricultural export segments. The firm specifically identified tea and basmati rice as vulnerable products. This warning follows the US decision to impose a 25 percent tariff on countries that trade with Iran. Such trade restrictions create immediate hurdles for these export categories.
Current Account Deficit Remains Manageable
Even as merchandise exports struggle, India's current account deficit (CAD) is expected to stay manageable. CRISIL pointed to several supportive factors. A strong services trade surplus provides a crucial buffer. Steady remittance inflows from Indians working abroad continue to bolster the economy. Softer crude oil prices also help contain the deficit.
The ratings firm projected the CAD at approximately 1 percent of GDP for the current financial year. It anticipates a mild rise to 1.6 percent in 2026-27. CRISIL described both figures as remaining within a safe range, indicating overall external balance resilience for now.
Outlook Clouded by Global Headwinds
CRISIL underlined that the outlook for goods exports faces stronger headwinds. Global trade frictions and persistent geopolitical risks continue to weigh on international demand and market access. These external factors create an uncertain environment for Indian exporters navigating complex international trade dynamics.
The combined effect of these challenges suggests a period of adjustment for India's export sector. Policymakers and businesses will need to monitor developments closely as they strategize for the months ahead.
