New Delhi, September 11, 2025 – India’s merchandise trade deficit saw a slight improvement in August, easing to $26.1 billion from $27.4 billion in July, according to the latest analysis by Union Bank of India (UBI). The narrowing comes as the economy prepares for the high-demand festive and wedding season, with gold imports playing a critical role in shaping trade dynamics despite global challenges.

Key Highlights from the UBI Report

UBI’s report attributes the modest deficit reduction primarily to a surge in gold imports, which nearly doubled compared to the previous month. Jewelers and manufacturers rushed to stock up ahead of Diwali, Navratri, and the October-November wedding season, pushing demand higher even as global gold prices remained elevated.

Trade deficit breakdown: The August merchandise deficit is estimated at $26.1 billion, reflecting a 4.8 percent improvement from July’s $27.4 billion. This comes after June’s much lower $18.78 billion deficit, which had reflected a temporary dip in imports.

Gold’s role: Gold imports were valued at around $4 billion in July, up 14 percent year-on-year, with volumes between 42 and 48 tons. That momentum carried into August, boosting overall imports but also aiding export-linked sectors such as gems and jewelry. The report notes that this early festive demand helped offset softer growth in electronics and capital goods imports.

Exports and imports snapshot: UBI estimates that exports in August held steady at around $35–37 billion, supported by engineering goods and pharmaceuticals. Imports rose to about $62 billion, largely due to gold and steady energy demand. For comparison, July exports stood at $37.24 billion (up 7.29 percent YoY), while imports were $64.59 billion (up 8.6 percent YoY).

Trade Data Trend (2025)

• June: Exports ~$33.14 billion, Imports ~$51.92 billion, Deficit $18.78 billion
• July: Exports $37.24 billion, Imports $64.59 billion, Deficit $27.35 billion
• August (Est.): Exports ~$35.90 billion, Imports ~$62.00 billion, Deficit $26.10 billion

Why the Gold Surge Matters for India’s Economy

Gold remains central to India’s trade dynamics. Accounting for over 5 percent of total imports annually, its demand spikes by 20–30 percent during festive months. Jewelry sales are projected to exceed 200 tons in Q4 2025 alone.

Several factors have fueled the latest surge:

• Policy tailwinds: The government retained a reduced 6 percent import duty on gold, cut from 15 percent in 2024. This has discouraged smuggling and encouraged official imports, which rose by 221 percent in similar periods last year.
• Global factors: International prices averaged $3,335/oz in early August, up 1 percent month-on-month. Meanwhile, the rupee depreciated by around 2 percent against the US dollar, making imports costlier but not deterring jewelers. Domestic gold prices hit ₹99,665 per 10 grams by mid-August, a 31 percent increase year-on-year.
• Economic ripple effects: While higher imports put pressure on the current account deficit, gold inflows support the gems and jewelry industry, which accounts for about 7 percent of India’s exports ($41.7 billion in FY25). UBI projects that the CAD could rise to 1.2 percent of GDP in FY26, up from 0.6 percent in FY25, as oil and commodity costs rise.

UBI’s Chief Economic Advisor, Kanika Pasricha, cautioned that the deficit remains elevated. She noted that strong gold demand, combined with steady energy needs and dependence on electronics, will keep pressures high. However, softer global commodity prices and domestic import substitution could provide some relief, with export growth depending on easing trade barriers.

Broader Context: Global Headwinds and Trade Risks

India’s trade performance in 2025 faces global challenges, particularly from tensions with the United States.

• US tariff risks: The 50 percent reciprocal tariffs imposed by Washington on August 7 threaten $86.5 billion worth of Indian exports to the US, which accounts for 17.9 percent of India’s total merchandise exports. Pharmaceuticals, textiles, and other key sectors are at risk. Negotiations for a trade deal remain stalled.
• Year-to-date performance: From April to July FY26, merchandise exports rose 3.07 percent to $149.2 billion. Imports climbed 5.36 percent to $244 billion, leading to a $94.81 billion deficit. Total exports, including services, reached $277.63 billion, up 5.23 percent year-on-year.
• Outlook: UBI expects the trade gap to remain wide in Q4 2025. Every $10 increase in global oil prices could add about $15 billion to India’s annual import bill. Still, services exports remain a strong cushion, with a $188.75 billion surplus in FY25. India has also diversified energy sources, with Russian oil imports rising 270 percent year-on-year compared to US supplies.

Implications for Businesses and Investors

For jewelers, the gold surge signals strong festive sales ahead, though higher input costs may weigh on profit margins. Exporters face uncertainty from US tariffs and weak global demand. For investors, gold’s safe-haven appeal remains intact, but the widening CAD poses risks to the rupee and equity markets. Policymakers are doubling down on their $1 trillion export target for FY26, with an emphasis on strengthening non-oil, non-gold (NONG) sectors.

As the Ministry of Commerce prepares to release official data, the modest narrowing of India’s trade deficit in August offers some relief. Yet, with global uncertainties and domestic demand pressures, the path forward will demand a careful balancing act between imports, exports, and policy measures.

Sources: Union Bank of India Report (September 11, 2025); Ministry of Commerce data; World Gold Council insights.