India’s Trade Deficit Hits Three-and-a-Half-Year Low
Recently, India’s merchandise trade deficit fell to $14.05 billion. This marked the lowest level in over three years. The decline was primarily driven by contraction in both exports and imports. Factors such as decreasing global petroleum prices and economic uncertainty due to US trade practices played important role. The trade deficit for February 2024 was notably higher at $19.52 billion.
Export Performance
India’s exports contracted sharply in February 2025. They fell by 10.9 per cent year-on-year, amounting to $36.91 billion. This decline was the steepest in 20 months. A high base effect from the previous year, where exports were $41.4 billion, contributed to this drop. Key sectors such as gems and jewellery, drugs and pharmaceuticals, and engineering goods experienced declines.
Import Trends
Imports also saw a notable decrease, falling by 16.3 per cent to $50.96 billion. This was the first decline in 11 months and was largely due to a 29.6 per cent drop in oil imports, which fell to $11.9 billion. Additionally, gold imports plummeted by 62 per cent to $2.3 billion. The reduced import levels indicate a weakening demand for foreign goods in India.
Impact of US Trade Policies
The outlook for India’s exports remains uncertain. The US plans to impose reciprocal tariffs starting April 2, which could further impact trade dynamics. Currently, a 25 per cent duty on steel and aluminium imports is already in effect. Exporters are concerned as American importers are delaying orders in anticipation of these tariffs.
Sectoral
Despite the overall decline, some sectors showed resilience. Exports of rice rose by 13.2 per cent, and electronic goods surged by 26 per cent. Readymade garments also saw a 4 per cent increase. Conversely, non-petroleum and non-gems-and-jewellery exports fell nearly 5 per cent, denoting mixed sectoral performances.
Future Projections
Commerce Secretary Sunil Barthwal expressed optimism about reaching $800 billion in combined exports of goods and services. The previous financial year recorded $778 billion in total trade. Aditi Nayar from ICRA suggested that the current account could post a surplus of approximately $5 billion in Q4FY25, equivalent to about 0.5 per cent of GDP.
Services Trade
Services exports showed a robust increase of 23.6 per cent, reaching $35.03 billion. In contrast, services imports rose by 8.6 per cent to $16.55 billion, resulting in a services trade surplus of $18.5 billion. However, these figures are preliminary and will be revised following the Reserve Bank of India’s updates.
Month: Current Affairs - March, 2025
Category: Economy & Banking Current Affairs