Strong export growth and fall in gold exports power resilience of India’s external sector, says Axis Bank

India’s strong export growth and a decline in gold imports helped contain the goods trade deficit in August, while robust tax collections and slower revenue expenditure kept state finances in check, according to an Axis Bank report.

Goods trade deficit annualises to $336 billion 

India’s goods trade deficit stood at around $27 billion in August 2026, which annualises to $336 billion, or 8.6% of GDP, on a seasonally adjusted basis, Axis Bank said. The deficit was broadly unchanged from a year earlier, as a decline in the gold deficit offset higher oil and non-oil, non-gold deficits. 

Goods exports rose 26% year-on-year, while non-oil imports grew 19%. Gold imports remained 71% below trend, while oil imports declined month-on-month. 

Export growth was led by petroleum products, which rose 63% year-on-year, electronics (90%) and engineering goods (25%). Agricultural commodity exports, however, declined. 

On the import side, electronics, fertilisers and machinery led growth in non-oil, non-gold imports, while steel imports fell year-on-year. Axis Bank said India’s refining surplus remained a buffer against rising oil prices. 

Even after adjusting for stronger festive gold demand, the bank estimates India’s current account deficit (CAD) at 1% of GDP in FY27, which it said should not be a key source of pressure on the rupee. 

The RBI’s monthly balance-of-payments release for July also showed that pressure on the rupee had narrowed further, with net foreign direct investment improving and remittances remaining resilient despite higher one-off FCNR flows, the report said. 

Strong tax collections keep state finances in check 

Spending by 19 states grew 6% year-on-year during the first four months of FY27 (April–July), compared with 11% growth in FY26. Slower subsidy spending kept revenue expenditure growth at 5%. 

Capital expenditure remained strong, rising 15%, while spending in the economic sector grew 22%. Loans under the Centre’s Special Assistance for Capital Investment (SASCI) scheme rose 75% year-on-year. 

Revenue growth improved by two percentage points from the previous year to 8%. State own-tax revenue grew 14%, supported by strong GST collections, higher stamp and registration duties amid rising real-estate values, and sales tax growth, aided by a 5% increase in oil volumes. 

However, central transfers declined due to the impact of the higher devolution base in June 2025 and lower grants under the 16th Finance Commission. The combination of revenue growth and controlled spending kept states’ fiscal deficit during April–July at 21.5% of their budget estimates, although this was 2.5 percentage points above the five-year median. 

State government securities (SGS) issuances in the first half of FY27 are likely to be 6% higher than in FY26, Axis Bank said. States have budgeted a fiscal deficit ratio of 3.1% for FY27, a target the report expects current trends to support. 

Urban hiring slows amid weaker demand 

Urban unemployment among people aged 15 years and above rose mildly for both men and women, as an increase in labour-force participation was not fully absorbed by hiring. 

The report noted that strong hiring in August last year had driven higher participation and lower unemployment. The RBI’s consumer confidence survey also points to weaker employment trends, consistent with the latest labour-market data. 

Rural hiring and participation, by contrast, remained strong, pushing unemployment lower. The worker-population ratio improved, particularly among women, possibly reflecting stronger sowing activity. Rural women also have a higher share of employment in agriculture than men. 

Axis Bank said weaker urban payrolls were consistent with a likely slowdown in domestic demand. A lower private final consumption expenditure (PFCE) deflator also pointed to possible cross-subsidisation effects. 

The report said softer demand could help bring inflation down in FY28, potentially limiting the need for policy rates to rise beyond a 6% neutral level.