Imports surged and exports fell to the lowest point ever for the month, pushing the merchandise trade deficit to the highest level in five months and the largest ever for June in the year, data released this week by the commerce ministry indicate. However, the deficit has widened by over 50% in the past year, to 28.21 billion dollars in May and only 19.10 billion dollars in June last year, despite assurances by government officials that the economy is "standing firm.

The numbers tell a tale of an economy that is still exporting less than it imports and paying more for it. Exports increased by a relatively small 15.5 percent to 40.41 billion dollars in June, the month's highest level, and goods imports jumped 31 percent to 70.84 billion dollars in June, the largest ever for the month. The bulk of the rise is due to higher crude oil prices and electronics and precious metals prices, which is significant as it indicates a price shock, and not a demand binge, said Commerce Secretary Rajesh Agrawal, while answering reporters in New Delhi. Imports of petroleum and crude oil have increased 23 percent to 19.32 billion dollars, electronics imports have increased by almost 44 percent to 13.36 billion dollars and gold imports have increased 47 percent to 1.96 billion dollars, despite a significant drop in silver imports. The two sectors petroleum and electronics and gems and jewellery combined contributed about 66 billion dollars of the deficit of 37.42 billion dollars in the April-June quarter, reflecting just how few are responsible for India's expanding trade deficit.

An energy market backdrop that has kept markets on edge throughout the first half of 2019 is behind the price effect. But the fact that the United States and Israel have been planning strikes against Iran, and that the Strait of Hormuz has been a source of constant tension this past week, in which India's crude imports pass through, has kept the price of Brent crude swinging wildly above 100 dollars a barrel on some trading days this past week. As a result, India's crude purchase dependency is nearly 85 per cent from imports, leaving its import bill highly vulnerable each time the region flares up. Now, credit rating agency Icra has revised up its estimate of the financial year ending March 2027 current account deficit to at least 1 percent of gross domestic product while Kotak Mahindra Bank chief economist has pointed out that the Reserve Bank's foreign exchange interventions should buffer the balance of payments even as oil prices remain the single most variable factor for the current account.

There's no all doom and gloom here. So, India's services trade is quietly plugging the hole created by its merchandise trade deficit. In June, services exports were valued at 33.03 billion dollars, nearly 3 percent higher than a year earlier; services imports were valued at 17.92 billion dollars, leaving a services surplus of just over 15.11 billion dollars that is nearly 50 percent of the goods shortfall. The volume of engineering goods exports increased by 21 percent to 11.48 billion dollars while electronic goods exports increased by 19 percent to 4.93 billion dollars and shipments to West Asia, which declined earlier in the year, rebounded more than 7 percent to 5 billion dollars. Exporters seem to have also booked shipments to the United States before the current bilateral trade deal, which has lowered Indian goods tariff rates from a punitive 50 percent to 18 percent following months of negotiations, expires this month, although the fate of the agreement hinges on the completion of the agriculture chapter. Remarkably, despite years of de-risking supply chains, China remained India's biggest individual source of imports, with the value of inbound shipments increasing by 40 percent to 13.34 billion dollars, while exports to China grew by nearly 32 percent.

All of this does not alter the structural argument which has explained how India had been able to chalk out its growth narrative through a very tough year. But the share of private consumption is still over 50 percent of GDP and, as in the past, a cushion which has often absorbed external shocks that would have thrown smaller, more trade-dependent economies off course. India's export growth in double digits is a significant achievement given the World Trade Organisation's gloomy estimate of only 0.5 percent growth in world trade for 2026.India's double-digit exports is a far cry from the WTO's gloomy trade growth estimate of just 0.5 percent for the year 2026. By most conventional definitions a policy working more or less as intended rather than a troubled economy has been the rupee, which has been sliding this week towards 95 to the dollar while growth and employment have been under pressure, and has lost more than 60 paise in a single session since crude prices spiked.

What the June data does reveal is not a crisis but a stress test that the Indian economy has been undergoing for more than a year now, with the first shock being American tariffs on the exports side and the second being Middle East oil disruptions on the import side. The government's bet is that domestic demand, expanded export markets with a greater reliance on the United Kingdom, the Gulf and Southeast Asian countries and the relatively stable flow of remittances will soften the impact enough to keep growth on track. As the American relationship nears a delicate renegotiation period, the India-UK treaty, which'll go into effect this week, as well as a parallel social security treaty, comes as one more diversification lever. The outcome of that bet hinges more on the overall trade print of the next two months than on any individual month, and more on the price of Brent crude and the tariff calculations of Washington.