India's trade balance is facing pressure from two fronts — surging energy costs and rising electronics imports. India's oil import bill rose to a record $22.7 billion in May 2026, driven by elevated crude and petroleum product prices amid geopolitical tensions in the Middle East, according to a report by Elara Securities.
The spike in energy prices lifted the country's overall import bill and contributed to a widening merchandise trade deficit. Although exports of petroleum products also benefited from higher prices, the increase in export earnings was insufficient to offset the surge in import costs.
The net oil import bill climbed to $14.3 billion, close to historic highs. Petroleum product exports stood at $8.4 billion in May, higher than the $5.4 billion recorded a year earlier but below the $9.6 billion reported in April.
Elara said elevated crude and derivative prices resulting from the Middle East conflict were among the biggest factors behind the widening of India's goods trade deficit to $28.2 billion, up from $22.6 billion in May 2025.
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Electronics deficit
Apart from energy imports, electronics are increasingly becoming a key contributor to India's trade imbalance.
The country's electronics trade deficit widened to $7.2 billion in May 2026, compared with $4.5 billion a year ago. At current levels, electronics account for nearly 25% of India's overall goods trade deficit, highlighting the growing importance of electronic goods in the import basket.
According to Elara, electronics imports have been growing much faster than exports. Over the past six months, imports rose by an average 26.3% year-on-year, while exports increased by only around 13%.
The brokerage noted that the expected boost from the rupee's depreciation has yet to materialise in the electronics segment.
China and Taiwan imports
Weak global demand for smartphones and higher semiconductor and memory chip prices have constrained electronics exports while pushing up import costs.
Elara highlighted that imports from China and Taiwan have reached record or near-record levels, partly due to increased purchases of electronics components and rising prices of semiconductors and RAM.
India runs an annual trade deficit of around $112 billion with China, making developments in Chinese producer prices and the yuan important factors to monitor.
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Electronics imports now account for roughly 17% of India's total imports, suggesting that dependence on overseas supply chains remains high despite efforts to boost domestic manufacturing.
Relief if any...
Despite the near-term challenges, Elara believes the worst may be over for India's external sector.
The brokerage expects softer crude oil prices and a potential moderation in freight costs following the reopening of the Strait of Hormuz to help normalise monthly imports to around $60 billion.
India has also diversified its export destinations and strengthened services exports and remittance inflows, which could help cushion pressure on the current account.
However, analysts caution that elevated electronics costs and continued reliance on imported components could keep the trade deficit under pressure.
As India's economy expands and demand for technology products rises, the twin challenges of energy dependence and electronics imports are likely to remain central to the country's trade outlook.
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Published on: Jun 16, 2026 2:50 PM IST
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