India’s Trade Deficit Hits $28.26B in May 2026

India’s trade deficit significantly expanded to $28.26 billion in May 2026, driven by a surge in imports that outpaced steady export growth, according to the Reserve Bank of India’s latest data.

This widening deficit stemmed from a notable increase in merchandise imports, which reached $73.40 billion in May. This figure marks an ascent from $71.93 billion recorded in the preceding month, primarily influenced by higher oil imports.

• Merchandise Imports (May 2026): $73.40 billion
• Merchandise Imports (April 2026): $71.93 billion
• Merchandise Exports (May 2026): $45.14 billion
• Merchandise Exports (April 2026): $43.72 billion
• Non-Oil Exports (May 2026): $36.74 billion

Despite the import surge, merchandise exports demonstrated a consistent upward trajectory, hitting $45.14 billion in May. This performance indicates robust global demand, particularly within the non-oil export sector.

Contrasting Capital Flows: FDI Strength Amidst Portfolio Outflows

The investment landscape presented a bifurcated picture, distinguishing between stable long-term capital and more volatile short-term flows. Foreign Direct Investment (FDI) emerged as a key strength, signaling enduring confidence in India’s economic prospects.

• Net FDI Inflows (April-May 2026): $6.5 billion
• Net FDI Inflows (April-May last year): $2.47 billion
• Gross FDI (April-May 2026): $13.77 billion

Conversely, portfolio investments, which include equities and bonds, experienced a significant reversal. India recorded net portfolio outflows totaling $12 billion during April and May 2026.

When combined, these differing trends resulted in an overall net foreign investment outflow of $5.5 billion for the two-month period. While FDI provides stable capital, the volatility in portfolio flows significantly impacts market sentiment and currency valuation.

Stabilizing Factors and Future Outlook

To counteract these external sector pressures, Non-resident Indian (NRI) deposits continue to serve as a crucial stabilizing mechanism. These deposits provide a consistent source of foreign exchange for the economy.

• Total NRI Deposits (May 2026): $165.96 billion
• NRI Deposit Inflow (First two months of fiscal year): $1.33 billion

Looking forward, market participants will closely monitor the interplay between export growth and the persistent import bill. Sustained high import costs, particularly for oil, could intensify downward pressure on the Indian rupee.

Investors will also be tracking whether the robust momentum in FDI continues in the coming months. This sustained inflow is critical to offset potential instability from portfolio movements and ensure the external sector’s stability.