India's April trade deficit widened beyond expectations, increasing balance-of-payments pressure

Overview

This report analyzes India's April trade data. The core conclusion is that both exports and imports recovered, but stronger import growth contributed more to the widening trade deficit. The merchandise trade deficit widened to USD28.4bn in April, while the services trade surplus remained solid at USD20.6bn, slightly below USD21.0bn in March. Nomura argues that price effects lifted both export and import bills, but steady import growth also shows domestic demand remains resilient.

Core views

Nomura's main views are: first, April export resilience is consistent with improving exports across other Asian economies, and Nomura's Asia export leading indicator points to further improvement; second, import growth was stronger, especially gold and consumer-goods-related core imports, indicating that the wider trade deficit was mainly driven by the import side; third, oil prices and other price factors may have exaggerated nominal import and export growth; fourth, the FY27 current account deficit could average 2.4% of GDP, and weaker capital inflows make BOP pressure more pronounced; fifth, the government has already taken steps such as restricting gold imports and raising retail petrol and diesel prices, and may continue to introduce policies to manage external account pressure.

Analysis framework

The report uses a monthly trade-data decomposition approach, comparing April versus March export, import, merchandise trade deficit, and services trade surplus, and further tracing the sources of change by product category and export destination. On the product side, it focuses on electronics, oil products, chemicals, textiles, gems and jewelry, gold, petroleum products, and core imports; on the regional side, it compares export performance to the US, Europe, China, the UK, the Middle East, and other destinations.

Methodology notes

• macroeconomic external account analysistrade balance and balance-of-payments framework

  Use merchandise trade deficit, services trade surplus, current account deficit, and capital inflows to assess a country's external-account pressure.

  The report combines the wider April merchandise trade deficit, the still-solid services surplus, the FY27 current account deficit outlook, and weak capital inflows to conclude that India's BOP pressure still needs policy management.

• trade data decompositiondistinguishing price effects from volume effects

  Nominal export and import growth may be driven by both price and volume changes, so it is necessary to distinguish real demand or capacity changes from price increases.

  Nomura believes both export and import bills were lifted by price effects, with oil products, chemicals, and petroleum imports especially likely affected by prices; electronics exports also reflect a higher share of smartphone assembly and improved volumes.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• India macro assets

  Trade deficit and BOP pressure are macro risk variables that may affect the currency, rates, and policy expectations.

  Strengths

  Export recovery, a solid services trade surplus, and still-resilient domestic demand.

  Weaknesses

  A wider merchandise trade deficit, weak capital inflows, and a relatively high current account deficit outlook.

  Comparison

  The April trade deficit was significantly higher than in March and also above market and Nomura expectations.

  Risks

  If imports continue to outpace exports or capital inflows remain insufficient, pressure on India's external accounts could rise further.

• gold

  The sharp rise in gold imports is one of the key factors widening the import bill and trade deficit.

  Strengths

  Demand remains strong, with gold imports up 81.7% y/y in April.

  Weaknesses

  High gold imports widen the trade deficit and may prompt the government to impose import restrictions.

  Comparison

  Gold imports were much stronger in April than the overall import growth rate of 10.0%.

  Risks

  Administrative restrictions, tax uncertainty, and customs delays may affect the pace of future imports.

• India electronics and smartphone assembly chain

  Electronics is one of the main drivers of the April export rebound and also an important source of core-import growth.

  Strengths

  Electronics exports rose 40.3% y/y, reflecting price effects and a higher share of smartphone assembly.

  Weaknesses

  Rising consumer-electronics-related imports also lifted core imports, potentially increasing trade-deficit pressure.

  Comparison

  Electronics export growth was clearly stronger than overall export growth of 13.8%.

  Risks

  If external demand or supply-chain conditions weaken, export momentum could slow.

• oil and energy-related imports

  Although petroleum-product imports contracted y/y, they rebounded sequentially, and higher import oil costs may offset volume declines.

  Strengths

  Lower petroleum-product volumes can help ease import pressure to some extent.

  Weaknesses

  Price effects may lift the import bill, and the government raised retail petrol and diesel prices to help reduce the CAD.

  Comparison

  Petroleum-product imports contracted y/y, but sequential improvement suggests a large price effect.

  Risks

  If energy prices remain high, India's trade deficit and inflation pressure may stay elevated.

Key data

• April merchandise trade deficitUSD28.4bnAbove USD20.7bn in March, and also above the consensus estimate of USD26.0bn and Nomura's estimate of USD25.5bn.
• April services trade surplusUSD20.6bnUSD21.0bn in March; services exports grew 13.4% y/y, above 7.3% in March.
• April export growth y/y13.8%March was -7.4%; electronics exports grew 40.3% y/y.
• April import growth y/y10.0%March was -6.5%; above Nomura's forecast of -5.0%.
• April gold import growth y/y81.7%Despite media reports that tax uncertainty left some gold shipments stuck at customs, gold imports still rose sharply.
• April core import growth y/y15.4%March was 10.2%; the report says this was mainly driven by consumer goods, especially electronics.
• FY27 current account deficit forecast2.4% of GDPNomura base-case forecast.
• BOP deficit tracking estimateabout USD70bnAgainst the backdrop of weak capital inflows, Nomura believes the balance of payments could show a sizable deficit.

Impact & implications

For assets and policy, rising pressure on India's external accounts may increase the likelihood of policy intervention, including continued efforts to curb gold imports, adjustments to energy retail prices, or other measures to manage imports and stabilize foreign-exchange flows. Resilience in electronics exports and the broader Asian trade chain is a positive signal, but weak demand from the US, Europe, and the Middle East, together with deficit pressure from gold and petroleum imports, may limit improvement in the macro external balance.

Risks

• Import growth continues to outpace exports, causing the merchandise trade deficit to widen further.
• Price effects obscure real volume changes, potentially overstating the underlying improvement in exports and imports.
• Weak capital inflows make the current account deficit more likely to translate into BOP pressure.
• Gold imports, oil prices, and consumer-goods imports may continue to raise external-account pressure.
• Weak demand in key export destinations such as the US, Europe, and the Middle East may weigh on future exports.

What to watch

• Whether India's merchandise trade deficit continues to come in above expectations in coming months.
• Changes in the import bill after gold import restrictions and petrol/diesel price adjustments.
• Whether electronics exports and the rise in smartphone assembly share can continue.
• Whether the services trade surplus remains above roughly USD20bn.
• Whether capital inflows improve enough to ease BOP deficit pressure.
• Whether the government introduces more measures to manage balance-of-payments pressure.