Trade deficit unexpectedly worsens in January, raising pressure on brittle rupee

Latest reading: Merchandise exports fell 2.4% year on year in January, a sharper decline than December’s 1.0% decrease. This marked the sixth shrinkage in seven months, pointing to a downtrend in the value of Indian exports resulting from lower oil prices. Meanwhile, merchandise imports shot up 10.3% on an annual basis in January (December: +4.9% yoy). As a result, the merchandise trade balance unexpectedly deteriorated from the previous month, recording a USD 23.0 billion deficit in January (December 2025: USD 21.9 billion deficit; January 2024: USD 16.6 billion deficit). This will raise pressure on the rupee, which has recently slumped to record lows as a result of the U.S. threatening blanket tariffs. Lastly, the trend pointed down, with the 12-month trailing merchandise trade balance recording a USD 268.6 billion deficit in January, compared to a USD 262.2 billion deficit in December.

Panelist insight: Goldman Sachs analysts commented on the potential impact on India of possible U.S. tariffs: “India's gross exports to the US is one of the lowest among its EM peers at ~2.0% of GDP. We estimate a potential domestic GDP growth impact of 0.1-0.3pp under different scenarios of increase in average US effective tariff rate on Indian exports (under country-level reciprocity and product-level reciprocity), and different estimates of price elasticity of US demand for Indian exports. However, in case of global tariffs on all countries from the US, India's domestic activity exposure to US final demand would be roughly twice as high (~4.0% of GDP) given exposure to the US via exports to other countries, and would likely result in a potential domestic GDP growth impact of 0.1-0.6pp.”

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