As Finance Minister Nirmala Sitharaman readies the Union Budget 2026, India’s ballooning trade deficit has emerged as a key concern, prompting expectations of targeted policy relief to stabilise the economy.
India’s trade deficit jumped to a record $41.68 billion in October, rising sharply from $26.2 billion a year ago and adding fresh pressure on the rupee, which has been trading near historic lows through the year. On Tuesday (October 14), the rupee slipped 13 paise to end at an all-time low of 88.81 against the US dollar, despite the RBI’s continued efforts to curb volatility.
The strain is expected to reflect in the current account deficit (CAD) as well. According to India Ratings and Research, CAD for the September quarter is likely to widen to 1.6%, the highest in seven quarters.
Economists warn that slowing global demand could weigh further on exports, while strong domestic appetite keeps imports elevated — a combination maintaining upward pressure on the deficit. The government has been attempting to offset some of this stress by signing new free trade agreements, but more support may be needed.
This Budget, Sitharaman is expected to roll out fresh incentives to boost outbound shipments, making Indian exports more competitive. The government may also build on its Production-Linked Incentive (PLI) framework, potentially extending benefits to high-impact sectors such as semiconductors, electronics, and defence — areas that contribute significantly to the import bill.
Policy measures aimed at supporting currency stability, attracting foreign direct investment, and strengthening forex reserves are also likely to feature in the upcoming Budget as tools to make exports more viable while reducing import burdens.
If executed effectively, Budget 2025 could mark a crucial step in narrowing the trade deficit and setting the stage for more resilient long-term economic growth.
India’s trade deficit jumped to a record $41.68 billion in October, rising sharply from $26.2 billion a year ago and adding fresh pressure on the rupee, which has been trading near historic lows through the year. On Tuesday (October 14), the rupee slipped 13 paise to end at an all-time low of 88.81 against the US dollar, despite the RBI’s continued efforts to curb volatility.
The strain is expected to reflect in the current account deficit (CAD) as well. According to India Ratings and Research, CAD for the September quarter is likely to widen to 1.6%, the highest in seven quarters.
Economists warn that slowing global demand could weigh further on exports, while strong domestic appetite keeps imports elevated — a combination maintaining upward pressure on the deficit. The government has been attempting to offset some of this stress by signing new free trade agreements, but more support may be needed.
This Budget, Sitharaman is expected to roll out fresh incentives to boost outbound shipments, making Indian exports more competitive. The government may also build on its Production-Linked Incentive (PLI) framework, potentially extending benefits to high-impact sectors such as semiconductors, electronics, and defence — areas that contribute significantly to the import bill.
Policy measures aimed at supporting currency stability, attracting foreign direct investment, and strengthening forex reserves are also likely to feature in the upcoming Budget as tools to make exports more viable while reducing import burdens.
If executed effectively, Budget 2025 could mark a crucial step in narrowing the trade deficit and setting the stage for more resilient long-term economic growth.