India's April trade deficit widens more than expected, lifting balance-of-payments pressure

Overview

The report analyzes India's April trade data: against the backdrop of a significant rebound in both exports and imports, stronger imports were the main reason the merchandise trade deficit widened. Nomura believes export resilience is consistent with other Asian economies, while stable imports indicate domestic demand remains supported, though price effects may have exaggerated the increase in export and import values.

Core views

The core view is that external-account pressure in India is rising. The April merchandise trade deficit widened to USD28.4bn, and although the services trade surplus remained solid, it was not enough to fully offset the pressure from the goods deficit. Nomura expects the FY27 current account deficit to be about 2.4% of GDP, and weak capital inflows could leave the balance of payments in a deficit of about USD70bn. As a result, the government has already taken steps such as restricting gold imports and raising retail gasoline and diesel prices, and may continue to introduce more BOP-management policies.

Analysis framework

The report uses a trade-data decomposition approach, explaining the change in the deficit from the perspectives of merchandise exports, merchandise imports, core imports, the services trade surplus, and regional/category structure, while combining Nomura's Asia export leading indicators, price-versus-volume effects, domestic demand signals, and policy responses to assess India's balance-of-payments outlook.

Methodology notes

• Macro external-account analysisTrade balance and current account framework

  The merchandise trade deficit, services trade surplus, and capital inflows jointly affect the current account and balance-of-payments pressure.

  The report first observes the widening of the April merchandise trade deficit, then combines the services trade surplus, the FY27 current account deficit forecast, and weak capital inflows to judge that India's balance-of-payments pressure is rising.

• Trade structure analysisPrice effect and volume effect decomposition

  Growth in import and export values may come from higher prices, larger volumes, or both.

  Nomura believes both export and import bills were lifted by price effects; electronics exports reflect both price and share gains, oil and chemicals more reflect price effects, and core imports include both price and volume factors.

Asset mapping & comparison

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

• Indian rupee and Indian macro assets

  A wider trade deficit and BOP deficit may increase external financing and FX pressure.

  Strengths

  Export resilience, a stable services trade surplus, and still-supported domestic demand.

  Weaknesses

  A wider merchandise trade deficit, weak capital inflows, and price effects lifting the import bill.

  Comparison

  The April deficit widened sharply from March and was above both consensus and Nomura expectations.

  Risks

  If BOP pressure persists, it could trigger more policy intervention, FX volatility, or import restrictions.

• Gold

  India's sharp increase in gold imports is one of the important drivers of higher imports and a wider deficit.

  Strengths

  Apparently strong import demand, indicating local demand or restocking momentum.

  Weaknesses

  Administrative and tax uncertainty delay customs clearance, and policy restriction risk is rising.

  Comparison

  Gold imports rose 81.7% y/y in April, significantly faster than the overall 10.0% y/y growth in imports.

  Risks

  The government has already imposed restrictions on gold imports, and further tightening could curb import volumes.

• Electronics and smartphone supply chain

  Electronics are an important component of both export growth and strong core import growth.

  Strengths

  Electronics exports rose 40.3% y/y, reflecting higher prices and share gains in smartphone assembly.

  Weaknesses

  Core import growth was driven by consumer electronics, which may also expand the import bill.

  Comparison

  Electronics outperformed textiles and gems and jewelry, both of which remained in contraction on the export side.

  Risks

  If external demand weakens or policy changes disrupt the supply chain, export resilience may fade.

• Oil and fuels

  Oil import price effects and domestic fuel price adjustments affect the current account and inflation.

  Strengths

  Oil imports were still contracting on a y/y basis, with lower volumes partly easing import pressure.

  Weaknesses

  Imports rose m/m, and higher oil import costs may offset the volume decline.

  Comparison

  Oil imports were negative on a y/y basis in April but rebounded m/m; the government has raised retail gasoline and diesel prices to reduce CAD pressure.

  Risks

  Higher oil prices or transport costs could continue to widen the import bill and add to inflation pressure.

Key data

• April merchandise trade deficitUSD28.4bnAbove USD20.7bn in March, and above market expectations of USD26.0bn and Nomura's estimate of USD25.5bn.
• April services trade surplusUSD20.6bnUSD21.0bn in March; services exports rose 13.4% y/y, above 7.3% in March.
• April export growth13.8%Was -7.4% in March; electronics exports rose 40.3% y/y.
• April import growth10.0%Was -6.5% in March; import growth was above Nomura's expectation of -5.0%.
• Gold import growth81.7%Despite media reports that gold consignments were held at customs due to tax uncertainty, gold imports still rose sharply.
• Core import growth15.4%Was 10.2% in March; mainly driven by consumer goods, especially electronics.
• FY27 current account deficit forecast2.4% of GDPNomura's base-case forecast.
• Estimated balance-of-payments deficitabout USD70bnDriven by current account pressure and weak capital inflows.

Impact & implications

For investment and macro positioning, India's external-account pressure may increase sensitivity to exchange rates, policy, and liquidity. Export resilience is favorable for the electronics manufacturing chain, but imports driven by gold, oil, and consumer electronics may worsen the trade deficit. If the government continues to restrict gold imports or adjust fuel prices, consumption, inflation, and commodities demand could all be affected.

Risks

• A persistently widening trade deficit could intensify current account and balance-of-payments pressure.
• Weak capital inflows could amplify external financing gaps and FX volatility.
• Price effects may exaggerate growth in import and export values, creating uncertainty around the assessment of underlying demand.
• Policy measures such as gold import restrictions and fuel price hikes may affect consumption, inflation, and demand in related industries.
• Disruptions in Middle East trade and higher insurance and shipping costs may continue to affect export and import costs.

What to watch

• Whether the Indian government introduces more measures to manage BOP pressure.
• The enforcement intensity of gold import restrictions and their impact on import values and local demand.
• The impact of oil prices, imported oil costs, and gasoline and diesel price adjustments on CAD.
• Whether electronics exports continue to grow strongly, especially changes in the smartphone assembly share.
• Whether the services trade surplus can continue to offset pressure from the merchandise trade deficit.
• Changes in capital inflows and their impact on the estimated USD70bn BOP deficit.