New Delhi [India], December 11 : India's external sector is showing mixed signals as merchandise exports lose momentum amid tariff-related disruptions; however, services exports continue to provide critical support to the country's current account position, noted a report by CareEdge.
"Looking ahead, as merchandise exports navigate a challenging environment, we expect the services trade surplus and transfers to maintain their support. This, coupled with benign global crude oil prices, is likely to keep India's current account deficit broadly manageable at around 1% of GDP in FY26." noted the report.
CareEdge highlighted that the export environment, which benefitted from front-loading in the initial months of FY26, has begun to soften since September. The report notes that non-petroleum exports contracted by 3.9 per cent during September-October 2025, reversing the 7.3 per cent growth recorded during April-August.
The slowdown comes in the wake of the 50 per cent reciprocal tariffs imposed by the United States from end of August, which have weighed heavily on several of India's major export categories.
The moderation has been most visible in labour-intensive sectors. Shipments of gems and jewellery saw a steep fall of 15.6 per cent over the last two months, while exports of textiles (excluding readymade garments) declined 9.5 per cent during the same period. Readymade garment exports also remained weak.
CareEdge stated that although exports to the US dropped sharply, the slide was partially cushioned by higher shipments to the UAE, Hong Kong, and China. However, it added that it is too early to confirm whether these trends point to a structural reorientation of India's export markets.
In contrast, electronic goods and petroleum products remained resilient, supported by tariff exemptions in the US market. These categories were the only major exceptions to the widespread decline seen across most outbound shipments to the United States.
On the import side, India has registered a robust 6.8 per cent growth during April-October FY26, driven by strong domestic economic momentum and heightened demand for precious metals. Gold and silver imports surged 30.5 per cent, marking their highest level in recent years. Combined with firm core import activity, this has pushed the merchandise trade deficit to USD 199 billion, its widest level in several years.
However, the report highlights that despite the pressure on goods trade, India's services sector continues to provide a significant buffer. Services exports grew 8.2 per cent during the first seven months of FY26, supported by strong expansion in software services (12.5 per cent) and other business services (22.4 per cent).
CareEdge observed that services exports, which remain outside the ambit of tariff disruptions, have been essential in stabilising India's overall external balance.
But it cautions "Going forward, the potential impact of the recent increase in H-1B visa fees and the proposed HIRE Act (Halting International Relocation of Employment), which seeks to curb outsourcing by US companies, remains a key monitorable for the performance of India's services exports." the report said.
The country's external position, however, showed some strain in the second quarter of FY26. The current account deficit widened to USD 12.3 billion, equivalent to 1.3 per cent of GDP, compared with USD 2.7 billion (0.3 per cent of GDP) in the previous quarter. This expansion largely reflects the deterioration in merchandise trade, although higher remittances and resilient services exports helped limit the imbalance.
Looking ahead, CareEdge expects overall merchandise exports to contract by around 1 per cent in FY26, while imports are projected to grow 5 per cent on the back of solid domestic demand. Services exports are projected to grow by 8.5 per cent, continuing to play a stabilising role in the current account.