India’s merchandise exports have slipped into the negative territory in May after registering a positive growth for two months.

The shipments contracted 2.17 per cent year-on-year to $38.73 billion because of a fall in global petroleum prices, while trade deficit narrowed to $21.88 billion during the month.

According to government data, imports declined 1.7 per cent year-on-year to $60.61 billion because of a fall in the inbound shipments of gold and crude oil. Cumulatively, during April-May 2025-26, exports increased 3.11 per cent to $77.19 billion, while imports rose 8 per cent to $125.52 billion.

“India’s merchandise trade deficit eased considerably to $21.88 billion in May from $26.4 billion in April 2025. This is expected to limit the widening in the current account deficit (CAD) print for Q1FY26 to around $13 billion (1.3 per cent of GDP).

“If crude oil prices average around $75/barrel over the remainder of this fiscal, we foresee the CAD at 1.2-1.3 per cent of GDP for FY26,” said Aditi Nayar, chief economist and head of research & outreach, Icra.

On the services front, the exports for May are estimated at $32.39 billion compared with $29.61 billion in May 2024. Imports rose to $17.14 billion from $16.88 billion a year ago.

War worries

The fall in merchandise shipments can be attributed to increasing global uncertainties. The Iran-Israel war could further dampen the prospects.

Commerce secretary Sunil Barthwal said on Monday: “We are watching the situation. We are also calling a meeting (this week) of all the shipping lines, the container organisations and the departments concerned and stakeholders to understand the kind of issues they are facing and how we can sort it out,” he told reporters here.

“If you look at the global picture...we are doing much better than the global average,” Barthwal said.

The secretary also said that the ministry is actively pursuing three free trade agreements with the UK, the European Union and the US. Talks are on with New Zealand, Peru and Chile.

Fieo president S.C. Ralhan said exporters are adapting well to a tough global environment. According to think tank GTRI, any closure or military disruption in the Strait of Hormuz would sharply increase oil prices, shipping costs, and insurance premiums, triggering inflation, pressuring the rupee, and complicating India’s fiscal management.

China outreach

India is hopeful of a positive outcome from its engagement with China to address issues related to Beijing’s export curbs on rare earth magnets, which are mainly used in the auto sector.

“We are facilitating discussions with their (auto) counterparts in China and at the diplomatic level the external affairs ministry and the department of commerce also have spoken to the Ambassador over there,” he said.

“We are making all the
efforts to see that these essential items of imports can come to India...what I feel that this diplomatic and commercial communication should yield a positive result,” Barthwal said.

Freight rates

Freight rates for Russian oil shipments from the Baltic ports to India eased further from late May to early June, thanks to high tanker availability, but the trend may reverse if Europe’s proposed lower price cap comes to fruition.

The European Union has put forward a new sanction package against Russia over Ukraine and proposed to lower the Group of Seven nations’ price cap on Russian crude
oil to $45 a barrel from $60 a barrel.