India’s merchandise exports rose 23% year on year to $44.40 billion in September 2026, their highest growth in four months, while imports increased 8% to $74.61 billion. The merchandise trade deficit widened to $30.21 billion from $26.86 billion in August, although it remained below the $33 billion recorded a year earlier. The figures, released by the Ministry of Commerce and Industry on October 15, offer grounds for optimism about export performance, but they also expose a persistent weakness in India’s industrial strategy.
Electronics and engineering goods helped drive export growth. Yet India continues to import substantial quantities of the components and raw materials used in domestic production. A growing export sector can generate jobs and earn foreign exchange while leaving much of the value of the finished product with overseas suppliers.
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India should not treat a merchandise trade deficit as evidence of economic failure. Imports of machinery, energy and industrial inputs support investment and manufacturing. The concern is that dependence on foreign suppliers can expose domestic industry to commodity price shocks, supply disruptions and changes in trade policy. The more useful questions are what India sells abroad, what it must buy to produce those exports, and how much value remains in the domestic economy.
The challenge is to become a global manufacturing hub without leaving industrial expansion excessively exposed to imported inputs.
Electronics exports are rising fast
India’s September export performance offers reasons for optimism. Engineering goods exports increased 20.91% year on year to $12.17 billion, while electronic goods exports climbed 70.4% to $5.31 billion from $3.11 billion a year earlier. Petroleum product exports rose 31.9% to $6.22 billion, and exports of organic and inorganic chemicals increased 24.21% to $2.94 billion. Several agricultural and manufactured product categories also recorded gains.
The growth in electronics is particularly significant. Production-linked incentive schemes have encouraged investment in domestic manufacturing and helped Indian producers integrate into global supply chains. Smartphone production, in particular, has become an increasingly important part of India’s export story.
But the export figures alone do not reveal how much domestic industry benefits from that growth. Electronics imports reached $14.86 billion in September, nearly three times the value of electronics exports. The categories include goods for domestic consumption as well as components and equipment used in manufacturing, so the comparison cannot establish the imported content of exported electronics. It does, however, underline the scale of India’s reliance on foreign electronics supplies.
A smartphone assembled in India illustrates the distinction between manufacturing a finished product and producing its components. The iPhone 16, for example, is assembled in India by contract manufacturers, including Foxconn and Tata Electronics, while advanced processors, memory chips and displays depend on international supply chains. Exporting the finished phone generates Indian manufacturing activity and employment, but the imported components account for a share of its production cost. Gross export earnings therefore overstate the value retained domestically.
The government estimates that domestic value addition in electronics manufacturing stands at 18-20%, according to a Ministry of Electronics and Information Technology statement published in April 2026. That estimate points to the distance India must cover between assembling products for export and building a broader manufacturing ecosystem.
The next phase of industrial policy should deepen domestic component production, supplier networks, research and development, and the technical skills needed for higher-value manufacturing. Incentives for final-product assembly can help establish production at scale, but their long-term payoff depends partly on whether Indian firms can supply more of the inputs. The government’s Electronics Component Manufacturing Scheme is intended to develop that ecosystem. Its success should be assessed by the capabilities and competitive suppliers it creates, alongside the investment and output it attracts.
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Oil dependence leaves trade balance exposed
Energy remains a major source of pressure on India’s import bill. Crude oil imports rose 3.1% year on year to $18.34 billion in September, reflecting the scale of the country’s dependence on imported petroleum. This exposure is difficult to remove quickly because transport, industry and other parts of the economy continue to require substantial quantities of oil.
India also exports refined petroleum products. Those exports reached $6.22 billion in September, up 31.9% from a year earlier, as Indian refineries processed crude into products for overseas markets. Refining adds domestic economic activity, but the export earnings must be considered alongside the cost of imported crude. Petroleum product exports do not, by themselves, eliminate the country’s exposure to international oil prices.
When crude prices rise, the consequences extend beyond the trade balance. Higher fuel costs can feed into transport charges and inflation. Allowing those costs to pass through can squeeze households and businesses; cutting fuel taxes or expanding subsidies to cushion the impact can reduce government revenue or increase fiscal pressure. The extent of the effect depends on global prices, exchange-rate movements and the government’s response.
India cannot eliminate its dependence on imported oil overnight. It can reduce its exposure over time through greater energy efficiency, expanded domestic power generation from cleaner sources, and alternatives to petroleum in transport and industry. Such changes require investment and take time, but they can make economic activity less vulnerable to external energy shocks.
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Smaller deficit does not mean competitiveness
Individual monthly import movements also need careful interpretation. Gold imports fell nearly 50% year on year to $1.8 billion in September, following changes to customs duties earlier in the year. Fertiliser imports declined 2.2% to $1.84 billion. Lower gold imports helped moderate the overall import bill, but one month’s purchases cannot establish a lasting improvement in domestic productive capacity.
Gold imports respond to prices, taxation, household demand and investment preferences. A fall in such imports can narrow the trade deficit without making Indian manufacturers more competitive. By contrast, a durable improvement driven by more productive domestic firms and stronger exports would be more likely to support employment and foreign-exchange earnings over time.
India’s services sector provides an important counterweight to the merchandise trade deficit. Services exports were estimated at $36.35 billion in September, against imports of $19.44 billion, producing a surplus of $16.91 billion. However, estimated services exports were slightly lower than a year earlier, while imports rose about 9%. The September figures are estimates; the latest available Reserve Bank of India data at the time covered August.
Services earnings help finance India’s imports and reduce the overall external trade gap. But there is no reason to assume that the surplus will always expand enough to offset weaknesses in goods trade. India needs competitive services exports as well as a manufacturing sector capable of selling more to the world.
The September figures show that Indian exporters can gain ground in global markets. The harder task is to ensure that export growth builds domestic capabilities rather than leaving production dependent on imported components and energy. India should continue to welcome foreign investment and participation in global supply chains, while judging industrial policy by whether it helps domestic suppliers become more productive and competitive. The objective is not to minimise imports indiscriminately. It is to build an economy that can earn more from exports while retaining a larger share of the value those exports create.