India Trade Deficit Widens in December

India’s merchandise trade deficit surged to $34.68 billion in January 2026, up from $23.43 billion a year earlier and well above market expectations of $26 billion. The gap was the largest since October’s record $41.68 billion, coming just weeks before New Delhi struck an interim trade deal with the US aimed at lowering tariffs. Imports jumped 19.2% year-on-year to $71.24 billion, driven largely by higher purchases of gold and silver, while exports rose only 0.6% to $36.56 billion. Earlier this month, US President Donald Trump announced a reduction in tariffs on Indian goods to 18% from 50%, offering relief to exporters and policymakers. Under the agreement, India has committed to reducing Russian oil imports and plans to more than double its annual purchases of US goods. The deal followed a trade pact with the EU, reflecting India’s broader push to strengthen trade ties with major global partners.

India will cut tariffs on European Union car imports to 40% from levels as high as 110%, Reuters reported. Prime Minister Narendra Modi’s government has agreed to immediately lower duties on select vehicles priced above EUR 15,000, with rates set to fall further to 10% over time, easing entry for automakers like Volkswagen, Mercedes-Benz and BMW. The move comes as India and the EU prepare to announce the conclusion of long-running free trade negotiations on Tuesday, with officials calling it “the mother of all deals.” Once finalized and ratified, the agreement is expected to expand bilateral trade and boost Indian exports of goods such as textiles and jewellery, which have faced 50% U.S. tariffs since late August.

The merchandise trade balance in India widened to $25 billion in December of 2025 from $20.6 billion in the corresponding period of the previous year, marking the sharpest trade gap for the month on record. Imports rose by 8.8% from the previous year to $63.6 billion despite a week rupee and the decline in global energy benchmarks in the period, which make up a large portion of Indian imports, although pressure from the US to temper Indian purchases of Russian oil likely increased the energy input costs for refiners. In the meantime, exports grew a softer 1.8% to $38.5 billion. Foreign sales for selected industries were under pressure from 50% tariffs by the US, with India among the only major economies that have not secured a trade deal with the White House.