India’s merchandise trade deficit widened sharply to a three-month high of $34.68 billion in January 2026, marking the final month before the expected reduction in elevated United States tariffs on Indian exports.

The widening gap between imports and exports was largely driven by a significant rise in gold and silver imports, which pushed overall imports up by 12 percent month on month to $71.24 billion. At the same time, exports declined by 5 percent to $36.56 billion, according to data released by the Commerce Ministry on February 16, 2026.

Government officials indicated that January would be the last month affected by the roughly 50 percent tariff imposed by the United States on certain Indian exports, with the rate expected to be reduced to 18 percent later this week. A trade delegation led by India’s trade secretary Rajesh Agrawal is scheduled to travel to Washington next week to finalise a broader trade agreement.

The developments mark an important moment in India’s external trade trajectory, as policymakers seek to balance import growth, export competitiveness and global trade relationships.

A Three-Month High Trade Deficit

The merchandise trade deficit of $34.68 billion is the highest recorded in the past three months. The trade deficit represents the difference between total imports and total exports of goods.

A widening trade deficit typically indicates that a country is importing significantly more than it exports. While this can reflect strong domestic demand, it can also put pressure on the currency and current account balance.

In January, the deficit widened primarily because imports rose sharply while exports contracted.

Surge in Gold and Silver Imports

One of the most significant contributors to the import surge was the spike in gold and silver imports.

India is one of the world’s largest consumers of gold, driven by:

• Jewellery demand

• Investment demand

• Festival and wedding season purchases

• Central bank reserves

A sharp rise in precious metal imports can significantly increase the overall import bill because of their high value.

The 12 percent month-on-month rise in total imports to $71.24 billion reflects strong demand for bullion as well as possibly restocking by traders anticipating future price changes.

Gold imports often fluctuate based on global prices, currency movements and domestic demand cycles.

Exports Under Pressure

Exports fell 5 percent in January to $36.56 billion. This decline occurred amid the continued imposition of high US tariffs on certain Indian goods.

The United States remains one of India’s largest export markets. Tariff barriers can affect the competitiveness of Indian products in sectors such as:

• Engineering goods

• Textiles

• Chemicals

• Agricultural products

With tariffs around 50 percent in place during January, exporters faced cost disadvantages compared to competitors from other countries.

The anticipated tariff reduction to 18 percent is expected to provide relief and improve export performance in the coming months.

Impact of US Tariff Policy

The elevated US tariffs had weighed on Indian exports in recent months. According to officials, January marks the last full month under the higher tariff regime.

The reduction of tariffs to 18 percent represents a significant easing of trade barriers.

Lower tariffs are expected to:

• Improve price competitiveness of Indian goods

• Boost export volumes

• Strengthen bilateral trade

• Encourage investment flows

A trade delegation is set to visit Washington next week to finalise the agreement, signalling progress in negotiations.

The outcome of these discussions could shape India’s export performance in the coming quarters.

Broader Trade Trends

The January data highlights two important trends:

1. Strong import growth driven by domestic demand and bullion purchases

2. Export contraction due to external trade barriers

While imports rising faster than exports widen the trade deficit, they can also signal robust economic activity.

India’s growing economy requires raw materials, machinery, energy and precious metals. However, sustained large deficits can impact macroeconomic stability.

Currency and Current Account Implications

A widening trade deficit can put downward pressure on the domestic currency if not offset by capital inflows.

However, India’s strong foreign exchange reserves and steady capital inflows often help cushion such pressures.

The current account balance, which includes trade in goods and services, remittances and investment income, will also be influenced by this widening merchandise gap.

If export growth resumes following tariff relief, the deficit may narrow in subsequent months.

Sectoral Impact

Precious Metals

The sharp increase in gold and silver imports suggests strong domestic demand. Rising global gold prices or expectations of future price increases may have influenced buying behaviour.

India’s festive calendar and wedding season often drive bullion demand during certain months.

Manufacturing and Engineering

Manufacturing exporters impacted by US tariffs may see relief once the new tariff rate takes effect.

Lower tariffs could improve order flows and production levels in key export-oriented industries.

Trade Policy

The visit of the Indian trade delegation to Washington indicates active diplomatic engagement.

Finalising a trade agreement could stabilise trade flows and reduce uncertainty for businesses.

Strategic Importance of US Market

The United States is among India’s largest trading partners. Bilateral trade spans goods, services, technology and investments.

Ensuring stable trade relations with the US is critical for:

• Export diversification

• Technology collaboration

• Investment flows

• Geopolitical cooperation

Tariff relief may strengthen economic ties and open new avenues for collaboration.

Economic Context

India’s domestic economy has shown resilience despite global uncertainties.

Strong consumption, infrastructure spending and investment activity have supported growth.

However, global trade conditions remain volatile due to:

• Geopolitical tensions

• Supply chain disruptions

• Commodity price fluctuations

• Monetary policy tightening in major economies

In this context, trade policy adjustments play a crucial role.

Balancing Imports and Exports

Managing the trade deficit involves both boosting exports and rationalising imports.

Strategies include:

• Expanding export markets

• Promoting high-value manufacturing

• Reducing dependency on non-essential imports

• Strengthening domestic production capabilities

Gold imports, while culturally and economically significant, often contribute significantly to the trade gap.

Policy measures such as import duties or gold monetisation schemes are sometimes used to moderate demand.

Outlook Ahead

The key factor to watch in the coming months will be the impact of US tariff reduction.

If exports rebound strongly, the trade deficit may narrow.

Additionally, trends in gold imports will be crucial. If bullion demand stabilises, import growth may moderate.

Global commodity prices and exchange rate movements will also influence trade data.

Policy Implications

Policymakers will closely monitor trade data to assess external sector stability.

If deficits remain elevated, measures may include:

• Export promotion schemes

• Trade diversification efforts

• Bilateral trade agreements

• Incentives for domestic production

Maintaining a balance between growth and macroeconomic stability remains a priority.

Conclusion

India’s merchandise trade deficit widened to $34.68 billion in January 2026, driven by a sharp surge in gold and silver imports and a decline in exports amid high US tariffs.

Imports rose 12 percent to $71.24 billion, while exports fell 5 percent to $36.56 billion.

January marked the final month under the elevated 50 percent US tariff regime, with rates expected to be reduced to 18 percent shortly.

A trade delegation will travel to Washington to finalise a new agreement, which may provide much-needed relief to exporters.

While the widening deficit reflects short-term pressures, upcoming tariff reductions and ongoing trade negotiations could help improve India’s external trade performance in the months ahead.

The next set of trade data will be closely watched to assess whether export growth resumes and whether the trade gap begins to narrow.

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