Shining exports, deepening deficit

India’s trade story has been a study in contrasts — one that invites applause and anxiety in equal measure. Exports are climbing again, buoyed by resilient industries and a widening global footprint, yet the country’s import bill is ballooning even faster, blowing a hole through the balance of payments. September’s trade data captures that tension perfectly: exports rose 6.74% year-on-year to USD 36.38 billion, while imports surged 16.6% to USD 68.53 billion, pushing the monthly trade deficit to USD 31.15 billion — the widest in over a year.

It is tempting to celebrate the export number as proof that India has weathered global turbulence and punitive tariffs. But to stop there would be to mistake motion for momentum. The figures also tell a more sobering truth — that India’s integration with the world economy remains both a source of strength and a source of strain. The widening trade gap shows how a country can export more and still end up with a weaker external balance if its domestic structure leans too heavily on imports.

For now, the export narrative is the more cheerful one. The Commerce Secretary, Rajesh Agrawal, was right to praise domestic industry’s resilience: despite the 50% tariffs imposed by the United States in late August on roughly half of India’s export basket, exporters have maintained supply chains and client relationships, even if it meant shaving profit margins. Sectors such as engineering goods, pharmaceuticals, chemicals, electronics, and gems and jewellery all registered positive growth in September. Electronics, in particular, led the charge — exports rose by over 50% to USD 3.1 billion — a testament to the impact of production-linked incentives and India’s steady move from assembly to manufacturing.

But these islands of strength are surrounded by waters of vulnerability. Traditional labour-intensive sectors like textiles, readymade garments, cotton yarn, and handloom have all contracted, some by more than ten per cent year-on-year. These are not marginal industries; they are among India’s largest employers, especially in rural and semi-urban regions. Their stagnation is more than an export problem — it is a livelihood issue. Meanwhile, petroleum product exports have fallen sharply from USD 35.6 billion to USD 30.6 billion in the first half of the fiscal year, reflecting weaker refining margins and a softening in global demand.

The import story is more unsettling still. India’s inbound shipments ballooned to USD 68.5 billion in September, up from USD 58.7 billion a year ago. Gold imports more than doubled to USD 9.6 billion, silver jumped 139%, and fertilisers soared 202%. Some of this spike can be traced to festive-season demand and price effects, but the pattern has become familiar: when domestic incomes rise, India’s appetite for consumption-led imports surges faster than its ability to supply from within. Even though crude oil imports dipped 5.8%, the relief from cheaper energy was overwhelmed by the import of precious metals and agricultural inputs.

This points to a structural weakness that no monthly data release can disguise. India’s manufacturing and export revival still depends heavily on imported inputs and intermediate goods. The electronics boom, for instance, is powered partly by imported components and chips. Fertiliser imports remain critical for agricultural stability. Every burst of domestic investment tends to suck in more intermediate goods. The result is a cycle where export growth itself generates import growth — an equation that leaves the balance of payments under constant pressure.

For now, India’s healthy services surplus offers a cushion. In the first half of the year, services exports reached USD 193 billion, up from USD 182 billion a year earlier. The IT and business process sectors continue to deliver, providing a trade surplus that offsets part of the merchandise gap. Yet the September numbers show a mild softening — services exports fell slightly year-on-year to USD 30.8 billion. That should ring an early alarm bell. If the services engine slows while the goods deficit widens, the current account could tilt beyond the comfort zone of 2–2.5% of GDP, putting pressure on the rupee and on foreign exchange reserves.

The balance of payments is not a crisis yet — reserves remain strong and capital inflows are steady — but the trajectory deserves attention. A widening trade gap financed by short-term portfolio inflows rather than long-term foreign direct investment can make the external account fragile. It also raises a bigger question: is India’s export growth keeping pace with the scale of its domestic expansion, or merely offsetting it? The answer determines whether we are witnessing sustainable integration or a temporary surge.

Export resilience is commendable, but it cannot hide the asymmetry between what India sells and what it buys. The policy focus should shift from chasing export volume to deepening export capacity. That means investing in supply chains for components, fertilisers, and minerals that are now imported in bulk. A credible push for domestic value addition — not protectionism — is essential if India wants to turn its export surge into a durable balance-of-payments improvement.

There is also need to defend and revive the labour-intensive sectors that are losing ground. A green, traceable “Made in India” label that meets Western sustainability standards could help recapture lost apparel markets. Rationalising GST structures and ensuring faster refund cycles would ease working capital stress for smaller exporters. Export growth that excludes millions of low-wage workers is not economic strength; it is social risk.

Further India must urgently conclude trade agreements that anchor its market access. The Federation of Indian Export Organisations is right to call for speed on free trade agreements with the EU, the UK, the GCC, and Latin American nations. Such deals are no longer symbolic — they are shields against tariff wars and instruments for diversifying export destinations.

Finally, India needs a smarter import strategy. Raising tariffs on gold or silver only fuels smuggling; better financial products — liquid gold bonds, inflation-indexed savings — would curb speculative imports more effectively. Fertiliser imports can be reduced through innovation in soil management and nutrient-efficient crop varieties. The goal should not be autarky but balance: importing what we must, producing what we can, and exporting what we’re best at.

India’s September trade numbers are a mirror —reflecting resilience and reliance. The country is learning to compete globally, but it has not yet learned to insulate itself from its own appetite. The challenge now is to convert this export momentum into structural strength, so that each billion dollars shipped abroad strengthens, rather than strains, the nation’s external account.

Exports can no longer be treated as a headline statistic. They are the frontline of India’s economic diplomacy, its industrial policy, and its macroeconomic stability. Growth that widens the deficit is not the kind of growth India can afford to celebrate for long. The next phase of reform must make the trade story not just about what leaves the ports, but about what stays balanced in the books.

The writer is a policy analyst focusing on economic development.