India’s merchandise trade deficit widened to a six-month high of US$31.98 billion in July, as the Middle East conflict increased the country’s oil import bill and pushed up international freight costs.

The July deficit exceeded the US$30.20 billion estimate in a Reuters poll and rose from US$30.43 billion in June. The widening gap has added pressure to India’s external balance at a time when higher import costs could affect the rupee and capital flows.

India’s goods imports climbed to US$76.22 billion in July, compared with US$70.84 billion in June, according to government data.

The increase largely reflected higher crude oil prices, with the conflict in the Middle East adding uncertainty to global energy markets and transport routes.

Higher fuel costs have also affected shipping expenses. Exporters reported sharp increases in freight rates on routes connecting South Asia with the United States and Europe.

Freight costs to the Middle East have also remained elevated because of regional disruptions, expensive fuel and limited vessel capacity.

Exports Hit July Record

Despite the wider trade gap, India’s merchandise exports reached a record US$44.24 billion in July.

The figure surpassed the previous July record of US$38.34 billion recorded in 2022. July exports also increased from US$40.41 billion in June.

The performance reflects strong demand for several Indian product categories, particularly petroleum products, electronics and engineering goods.

Trade Secretary Rajesh Agrawal said exports to the Middle East also remained resilient. Shipments to the region rose 8.6 per cent year-on-year to US$5.7 billion during July.

Oil Costs Add Pressure

India remains heavily dependent on imported crude oil, making its trade balance particularly sensitive to global energy prices.

The Middle East conflict has increased uncertainty around supplies and transportation, contributing to higher costs for importers. A sustained rise in oil prices could further increase India’s import bill in the coming months.

Higher energy and freight costs could also affect exporters by raising production and transportation expenses, particularly for businesses that rely on imported inputs.

Services Cushion Deficit

India’s strong services trade continued to provide some relief to the overall external balance.

Services exports stood at US$35.89 billion in July, while services imports were estimated at US$18.94 billion. This produced a services surplus of US$16.95 billion.

The services surplus helps offset part of the merchandise trade deficit and remains an important source of support for India’s external accounts.

The strength of sectors such as information technology and business services has helped India maintain a significant surplus in services trade.

$1 Trillion Export Target

Trade Minister Piyush Goyal has expressed confidence that India can achieve its US$1 trillion goods and services export target for the financial year ending March.

Goyal said exports increased by about 15 per cent during April-July, indicating continued momentum despite global economic and geopolitical uncertainties.

The government is closely monitoring developments in the Middle East because prolonged disruption could affect both energy prices and shipping routes.

Outlook for India

The July figures highlight the challenge India faces in maintaining export growth while controlling the cost of essential imports.

Record merchandise exports provide a positive signal, but the sharp rise in imports has kept the trade deficit elevated. A prolonged Middle East conflict could increase pressure on energy costs and freight rates further.

For businesses and policymakers tracking the latest India News Update, the balance between export growth, oil prices and global shipping conditions will remain crucial. The coming months will show whether India can sustain its export momentum and move closer to the government’s US$1 trillion export target while containing the impact of the wider trade deficit.