India’s merchandise trade deficit narrowed to $26.9 billion in August from $32 billion in July, coming in well below the market expectation of $32.2 billion and Nomura’s estimate of $33.7 billion, according to Nomura’s September 16 report. The improvement marks a shift from the elevated trade deficits recorded in recent months following the Iran war.

The narrowing of the deficit was primarily driven by stronger-than-expected export growth and a moderation in import growth. Merchandise exports increased 26.1 percent year-on-year in August, significantly ahead of Nomura’s estimate of 19.3 percent. The brokerage attributed the resilience in exports to higher prices, diversification of India’s export base, firm global demand and easing trade tensions with the US.

Electronic goods remained a key export driver, with exports rising around 90 percent year-on-year. Engineering goods exports increased around 25 percent, while marine product exports rose approximately 28 percent. Nomura noted that electronics exports continue to be a strong performer, while higher crack spreads have supported elevated oil exports.

Import growth moderated to 14.1 percent year-on-year in August from 17.5 percent in July and was below Nomura’s estimate of 21.3 percent. Oil imports continued to grow strongly, increasing 25.8 percent year-on-year. However, gems and jewellery imports contracted by around 35 percent, which Nomura attributed to a combination of higher customs duties and restrictions, along with a sequential moderation in gold prices.

Core import growth remained steady at around 19 percent, indicating continued domestic demand for non-oil and non-gold imports despite the moderation in overall import growth.

The services trade surplus remained broadly stable at $17.4 billion in August compared with $17.6 billion in July. In July, India’s current account deficit widened to $7 billion from $6.2 billion in June, although a strong invisibles surplus supported by services exports and remittances helped contain the external deficit.

The capital account surplus increased sharply to $27.7 billion in July from $2.9 billion in June, primarily reflecting a surge in non-resident Indian deposits through the FCNR(B) scheme. Nomura expects the balance of payments surplus to increase further in August, supported by estimated FCNR(B) inflows of around $90 billion.

Nomura expects India’s current account deficit to average 1.5 percent of GDP in FY27, compared with 0.6 percent in FY26. The brokerage also estimates that India could record a balance of payments surplus of $65.5 billion in FY27, reversing from a deficit of $23.6 billion in FY26.