India’s External Balance Strengthens as Gold Imports Normalize and Services Cushion Deficit

What’s the Point?

• Sharp Trade Deficit Correction: Goods deficit compressed to $24.5bn in Nov’25 from $41.7bn in Oct’25, led by $12bn+ normalization in gold and silver imports.
• Exports and Services Resilience: Improved exports performance, a consistently strong services surplus and resilient remittance inflows continue to cushion the current account.
• Capital Account in Focus: A manageable current account shifts the spotlight to capital flows, where volatile FPIs remain a key variable, making stable FDI essential for balance-of-payments resilience.

Trade Deficit at a 5-month low

India’s external metrics improved meaningfully in November 2025 as Merchandise exports increased 19.4% year-on year to $38.1bn, while imports contracted 1.9% to $62.7bn, compressing the goods trade deficit to $24.5bn, the lowest since Jun-25 and far below record $41.7bn gap of Oct-25. The correction was driven by normalization in gold and silver imports following festive-season front‑loading, alongside stable oil imports. On the invisibles side, the services surplus was steady around $17.9bn, helping cushion the current account.

Why November’s Current Account Position improved?

Lower gold imports post festive normalization: After October’s spike, gold imports fell by $10.7bn (from $14.7bn in Oct’ 25 to $4.0bn in Nov’25) with Silver imports also dropping by ~$1.6bn (vs Oct’25). The normalisation of festive demand sharply reduced non-oil import pressure. Simply put, out of the total Trade Deficit reduction of $17.2bn (vs October), ~$12.3bn could be attributable to Gold and Silver imports alone.

Improved exports, especially to the US and China, led by non-tariffed segments    
Merchandise exports rose to $38.1bn (+19.4% YoY), driven by engineering goods ($11.0bn, +24% YoY), electronics ($4.8bn, +39% YoY), and pharma ($2.6bn, +21% YoY). Country-wise, exports to the US jumped ~23% YoY to $7.0bn, with strength in segments not directly impacted by high/differential India tariff. Exports to China surged ~90% YoY as China looks to diversify its export focus away from US.

Higher remittances, an added layer of cushion   
Remittances remain another key support, with receipts expected to be ~$135Bn for FY26, which would be almost twice the pre-Covid level of $70bn.

Better services revenue growth  
Services exports grew ~12% YoY to $35.9bn in November, while services imports increased marginally, keeping the services surplus elevated. The steady surplus (around $17.9bn) provided a meaningful offset to the goods deficit, improving overall current account dynamics for the month. Year-to-date, services exports were up 8.7%

Currency weakness aiding export competitiveness 
Weaker rupee over the last few quarters has also aided export competitiveness at the margin by partially offsetting tariff‑related pressures and making Indian goods/services relatively cheaper in dollar terms.

Current Account Manageable, focus to shift to capital side

While the near-term current account dynamics look manageable, the focus increasingly shifts to the capital account as the key factor for overall Balance of Payments stability. A more fragmented global environment, persistent geopolitical risks and episodes of risk-off sentiment can amplify volatility in portfolio flows, particularly in emerging markets. In addition, a weaker Rupee and the recent relative outperformance of global equity markets may intermittently divert flows away from India. In fact, net FPI flows have been negative in 3 out of last 4 CYs (including CY25). Against this backdrop, attracting stable and durable capital in the form of FDI becomes more critical to finance the current account deficit.

Conclusion: Looking ahead, the durability of the narrower trade deficit will largely depend on whether recent export momentum can be sustained amid a still uneven global growth environment and ongoing tariff-related uncertainties. Merchandise exports may face intermittent headwinds, but structural tailwinds from services exports and steady remittance inflows provide a strong counterbalance. Assuming no major external shock, such as a sharp spike in oil prices or a severe global slowdown, the current account deficit is likely to remain within a manageable range.

Sources: Bloomberg, CMIE and other publicly available information

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