May’s trade data suggests that India’s exports continue to hold up despite tariff uncertainties and worries over global growth. Moreover, lower oil prices contained our import bill and in turn the trade deficit in May. However, rising tensions in the Middle East and a subsequent spike in oil prices (last trading close to $76 pbl.) has emerged as a key risk. A sustainable move above $80 pbl. in oil prices could present an upside risk (between 30-40bps) to our CAD forecast of 0.5% of GDP for FY26. Apart from the impact on our oil import bill, an escalation in tensions between Israel and Iran which leads to a disruption in supply chains (due to any blocking of the Strait of Hormuz) could have wider implications for both our exports (due to higher shipping costs) and imports (for instance, fertilizers).
For India, the recent trade data shows a continued rise in exports to the US (on possible stocking up). Sector-wise, export growth in electronics and chemical exports remained healthy. Encouragingly, labor-intensive sectors like ready-made textiles also recorded an increase in export growth. India’s imports from China continued to rise.
Looking at trade data for other countries indicates that Asian countries (excluding China) have also seen a rise in exports to the US in recent months while China’s exports to the US have dropped. China seems to have compensated this by raising exports to other countries including ASEAN, India, Africa, and EU. Some of this could be explained by re-routing of exports to the US through these countries.
India Merchandise trade deficit narrowed to USD 21.9 bn in May 2025 from USD 26.4 bn in April as goods exports remained broadly flat while imports saw a decline sequentially due to falling oil imports. Although, on a y-o-y basis, both goods exports and imports contracted in May compared to last year. It was encouraging to see that India’s net services exports continued to hold up, with service exports at USD 32.4 bn (close to the last 12-month average). As a result, the combined goods and services trade deficit narrowed to USD 6.6 bn in May from USD 10.5 bn in April.
Exports rise compared to April: On a sequential basis, goods exports rose by 0.6% in May, driven by higher non-oil exports including engineering goods, electronics, and chemicals. Moreover, by destination, India continued to increase its exports to the US reflecting possible stocking up by US companies. On the other hand, lower petroleum exports (possibly due to lower prices) were a drag on total goods export growth. That said, compared to last year, India goods exports contracted by 2.2% y-o-y in May compared to +9% growth in April 2025. A major drag came from lower petroleum exports, while engineering goods exports, which account for over one-fourth of our export basket also contracted slightly by 0.8% y-o-y.
Labor-intensive sector exports also rising: Exports from several labor-intensive sectors performed well in May, including ready-made textiles and jute manufacturing (11.3% y-o-y), marine products (26.8% y-o-y) and dairy & poultry (16.9% y-o-y).
Imports contracted due to lower oil and gold imports while non-oil non-gold imports rose: India’s imports contracted by 1.7% in May to USD 60.6 bn, driven by a 26.2% contraction in our oil bill. The average price of the Indian basket of crude oil dropped to an average of USD 64.04/bbl., relative to USD 82.55/bbl. last May. Elsewhere, a steady upward rally in gold prices led to a decline in gold demand, leading to a 12.6% decline in gold imports. Non-oil non-gold imports continued to grow on the back of higher metal, electronics and machinery imports.
Where are we importing from? India’s imports from China grew by 21.6% y-o-y in May to USD 10.3 bn. On the other hand, our imports from Russia (-18.6%), Iraq (-31.7%) and Saudi Arabia (-21.5%) have declined in May on a y-o-y, likely due to lower oil prices.
Dumping risk: Metal imports continued to increase in May, rising by 14% to USD 4.3 bn. Many large steel players have reported an increase in volume of steel imports due to large supply of low-cost Chinese imports in recent months. The government in response had levied a 12% safeguard duty on certain steel products since March. However, the risk of dumping from China to other countries including India, especially post the 50% tariff imposed by the US on Steel recently, continues to linger on.
Assessing Tariff Impact: Trade Patterns in other countries (April & May 2025)
Increase in Asia (ex-China) exports to USA in 2025: Exports by several Asian countries to the US have surged since Jan 2025, likely driven by frontloading in anticipation of future tariffs.
China exports less to the US – impact of tariffs, diversification and possible re-routing of exports? Chinese exports reduced to the US and instead rose to other geographies. While China’s exports to the US contracted by 35% in May, it increased its exports to Africa, ASEAN, India and the EU. A part of this decline in Chinese exports to the US could reflect initial signs of diversification to other regions, direct impact of higher tariffs on China and in part could also be indicative of re-rerouting of Chinese goods to the US through other countries. Countries like Malaysia, Thailand, Vietnam, and Singapore saw a rise in imports from China and an increase in exports to the US.
Increase in re-exports by Singapore: Singapore stands out; while its goods exports to the US increased by 21% in May, a significant portion of this growth was driven by re-exports, which rose by 87% compared to a 32.8% decline in domestic exports. Singapore has always had a higher share of re-exports due to its significance as an entrepôt. However, the share of re-exports to the US increased to 11.3% in May 2025, up from 7% the previous year.
Japan has also increased exports to African nations and India. On the other hand, South Korea has witnessed a general slowdown in trade; its exports declined by 1.3% in May, while exports to the US contracted by 8.1%. To counter this, it increased its exports to the EU.