The share of India’s merchandise exports during the first half (H1) of fiscal 2025-26 (FY26) increased significantly, indicating diversification of export basket with the United Arab Emirates (UAE), China, Vietnam, Japan, Hong Kong, Bangladesh, Sri Lanka and Nigeria across product categories, according to the State Bank of India’s (SBI) latest newsletter SBI ECOWRAP.

Insights

The share of India's H1 FY26 merchandise exports rose notably, implying diversification of export basket with the UAE, China, Vietnam, Japan, Hong Kong, Bangladesh, Sri Lanka and Nigeria across product categories, SBI ECOWRAP said.

The share of exports of cotton garments to the US in the total exports to that country reduced to 29 per cent in September from 34 per cent in the same month last year.

“So, could it be that some destinations are now exporting more to the US after procuring from India?” the newsletter wondered.

India’s total merchandise exports during H1 FY26 inched up by 2.9 per cent to $220 billion compared to $214 billion in H1 FY25.

Cumulative exports to the US also registered a growth of 13 per cent to $45 billion in H1 FY26 from $40 billion in H1 FY25, though there could be some front loading effects to the aftermaths with September figures registering negative year-on-year (YoY) growth of 12 per cent.

The share of exports of cotton garments to the US in the total exports to that country reduced to 29 per cent in September this year from 34 per cent in the same month last year. The figure for exports of cotton fabrics and made up articles exports fell to 31 per cent in September 2025 from 39 per cent in the same month last year.

In cotton garments, the share of UAE has increased, while Bangladesh, Sri Lanka and Nigeria have now higher share in exports of cotton fabrics and made-ups export.

On a balance of payment (BoP) basis, India’s current account deficit (CAD) was 0.2 per cent of gross domestic product (GDP) in the first quarter (Q1) of FY26 compared to 0.9 per cent in Q1 FY25.

SBI expects India’s current account will be in deficit mode of 1.8-2.8 per cent of GDP in Q2 and Q3 FY26 before it turns into positive side in Q4. For the complete fiscal, it expects an overall deficit in the range of 1.0-1.3 per cent of GDP.

Regarding overall BoP, it expects a marginal deficit of up to $10 billion for FY26 compared to $5 billion in FY25. Therefore, though BOP will turn negative in FY26, the alarm bells that are being sounded regarding its impact on rupee movements seems to be a little overblown at this point, SBI noted.

At an aggregate basis, India’s merchandise trade balance of goods and services has increased very modestly during the first seven months of FY26, even after the tariff meltdown, the newsletter remarked.