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November 18, 2025 Indian Economy Navigates Trade Deficit Amidst Robust Growth and Strategic Trade Deals

India's economy displayed resilience despite a significant widening of the trade deficit in October 2025, primarily driven by a surge in gold imports due to festive demand and a contraction in merchandise exports. Economic growth projections remain strong at 7% for Q2 FY26, bolstered by robust industrial activity. Key developments include the nearing completion of the first phase of a bilateral trade agreement with the US and a landmark deal for LPG imports from the US, enhancing energy security. Efforts to boost manufacturing, support MSMEs, and expand the investor base are also underway.

The Indian economy demonstrated continued resilience over the last 24 hours, even as official data revealed a substantial increase in the trade deficit for October 2025. This widening deficit was largely attributed to a significant surge in gold imports, driven by festive season demand, alongside a contraction in merchandise exports. Despite these trade imbalances, the nation's economic outlook remains positive, with strong growth forecasts and strategic advancements in trade relations and domestic manufacturing.

Trade Deficit Widens on Gold Import Surge

India's merchandise trade deficit escalated to a record $41.68 billion in October 2025, a considerable jump from $32.15 billion in September. Some reports indicated a trade deficit of $21.8 billion, a 141% increase compared to the previous year, primarily due to soaring imports.

Gold imports alone saw a remarkable increase, nearly tripling or growing by 200% to $14.72 billion in October, compared to $4.92 billion in the same period last year. This surge was largely influenced by festive demand and speculative buying ahead of the festive season, despite high global prices.

Conversely, merchandise exports experienced an 11.8% decline to $34.38 billion in October 2025. This contraction was attributed to a high base effect from the previous year, a global economic slowdown, and the impact of US tariffs on certain Indian products. However, services exports registered a positive growth of 11.9%, reaching $38.5 billion.

Economists anticipate that the current account deficit is likely to widen materially to 2.4-2.5% of GDP in Q3 FY26, up from an expected 1.8% in Q2 FY26, though a cooling of gold imports in subsequent months might offer some relief.

Robust Economic Growth and Resilience

Despite global uncertainties and external headwinds, the Indian economy continues to exhibit exceptional resilience and stability. The financial sector is poised to be a crucial catalyst for the country's next phase of economic transformation, with ongoing reforms strengthening its robustness and inclusivity.

India's GDP growth is projected to remain strong, with an assessment forecasting a 7% expansion for Q2 FY26, slightly down from 7.8% in Q1. This growth is predominantly driven by a pick-up in industrial activity, while the services and agriculture sectors show moderate growth. Gross Value Added (GVA) growth is estimated at 7.1% for Q2 FY26. The unemployment rate remained steady at 5.2% in October.

Prime Minister Narendra Modi urged states to foster a competitive environment for investment and ease of doing business, emphasizing that development should be the top priority for all governments.

Advancements in Trade Relations and Energy Security

Significant progress has been made on the bilateral trade agreement between India and the United States, with the first phase reportedly "nearing closure" or "almost complete." Discussions are ongoing to address reciprocal tariffs imposed by Washington on several Indian products.

In a landmark move to bolster energy security and diversify its supply, Indian oil companies have secured their first-ever deal to import 2.2 million tonnes of Liquefied Petroleum Gas (LPG) from the US. This agreement will see nearly 10% of India's LPG sourced from the US.

Focus on Manufacturing and MSME Growth

India is actively working to expand its footprint in global manufacturing value chains, moving beyond its traditionally strong services sector. At the 22nd CII Global MSME Business Summit, Minister MSME Kondapalli Srinivas highlighted the government's commitment to strengthening the manufacturing ecosystem. He emphasized supporting Micro, Small, and Medium Enterprises (MSMEs) to grow and leverage technology for global opportunities, advocating for standardization and certification to boost India's export competitiveness.

Corporate and Market Updates

  • Maruti Suzuki announced a recall of 39,506 units of its Grand Vitara vehicles to inspect and rectify a potential defect in the fuel pump motor.

  • Indian Hotels Company Limited (IHCL) is expanding its wellness segment through the acquisition of a 51% stake in Sparsh Infratech, the owner of Atmantan Wellness Resort.

  • Siemens reported mixed results for Q2 FY26, with revenue up 16% and EBITDA up 13%, but net profit down 41.5% year-on-year. However, the company saw a 10% rise in new orders, contributing to a robust order backlog.

  • Reliance Industries is planning to establish a 1 GW AI data center in Andhra Pradesh, reinforcing its investment footprint in the state.

  • The Securities and Exchange Board of India (Sebi) aims to double the number of unique investors in the country within the next three to five years.

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