The trade deficit has decreased significantly, driven by a moderation in non-oil and non-gold imports, despite ongoing geopolitical risks and tariff challenges.
India’s Trade Deficit Sees Significant Reduction in February
India’s trade deficit has experienced a sharp decline in February 2025, reaching $14.05 billion, the lowest level since August 2021. This reduction is primarily attributed to a significant drop in imports, which fell to $50.96 billion from $59.42 billion in January. Despite ongoing global uncertainties and geopolitical tensions, India’s exports remained relatively stable at $36.91 billion, marking a modest increase from the previous month.
The decline in imports was driven by several factors, including fluctuations in petroleum prices and a high base effect from February 2024. Additionally, changes in the prices of precious metals like gold and silver contributed to the decrease. Petroleum imports were $11.8 billion, while gold imports stood at $2.3 billion. The reduction in imports was a key factor in narrowing the trade deficit, as exports, although steady, did not see substantial growth.
On the services front, India experienced a decline in exports to $35.03 billion from $38.55 billion in January, while services imports decreased to $16.55 billion from $18.22 billion. This decline in services exports adds pressure to India’s overall trade balance, despite the improvement in the merchandise trade deficit.
For the financial year so far, non-petroleum merchandise exports have shown a growth of 6.43%, indicating resilience in sectors outside of oil. However, overall merchandise exports have seen only a marginal year-on-year increase of 0.06%, while imports rose by 5.71%. This has resulted in a cumulative trade deficit that is 16.86% higher than the previous year.
Challenges and Opportunities
Despite these challenges, India remains optimistic about its export growth. The Commerce Ministry is confident that total exports will surpass $800 billion this fiscal year, up from $778 billion last year. The gems and jewelry sector has faced difficulties, but other sectors like coffee exports have shown exceptional growth. Non-petroleum trade continues to be a strong pillar, expanding at a rate of 6%.
India is actively engaged in international trade negotiations, including the ongoing talks for a free trade agreement with the EU and discussions with the US to increase bilateral trade to $500 billion by 2030. Commerce Minister Piyush Goyal has been meeting with US officials to explore opportunities and assess the potential impact of new US tariffs.
The US is implementing reciprocal tariffs globally to address trade imbalances, and India is working to strengthen economic ties with the US. This includes exploring a mutually beneficial trade agreement that could significantly boost bilateral trade.
Global Trade Dynamics
Among India’s top export destinations, there was positive growth in exports to countries like the US, UAE, UK, Japan, and the Netherlands during the April-February period of 2024-25. However, the decline in exports for the fourth consecutive month in February, impacted by volatility in petroleum prices and global uncertainties, poses challenges for India’s trade outlook.
The sharp drop in imports, particularly of crude oil, gold, and silver, has been a significant factor in reducing the trade deficit. However, the ongoing geopolitical risks and tariff challenges from countries like the US require careful management to sustain this improvement.
As India navigates these global trade dynamics, it is crucial to maintain a balance between reducing the trade deficit and promoting export growth. The government’s efforts to boost exports and negotiate favourable trade agreements will be key to achieving these goals.
What do you think are the most critical steps India should take to sustain its reduced trade deficit while addressing ongoing global trade challenges?
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