India’s Trade Deficit Hits 42-Month Low Amid Falling Imports
Merchandise Trade Deficit Narrows Significantly
India’s goods trade deficit dropped to a 42-month low of $14.05 billion in February 2025, marking a substantial improvement from the $22.9 billion deficit recorded in January 2025. This sharp decline was primarily driven by a fall in gold, silver, and crude oil imports, according to data from the Ministry of Commerce and Industry. In comparison, the merchandise trade deficit stood at $19.5 billion in February 2024.
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Gold, Silver, and Crude Oil Imports Decline
One of the most notable factors behind the narrowing trade deficit was a reduction in gold and silver imports, which fell to $2.7 billion in February 2025—the lowest level since June 2024, when imports stood at $2.5 billion. Similarly, crude oil and petroleum imports declined to $11.89 billion, the lowest since July 2023, when the figure was $11.81 billion. The dip in commodity imports significantly contributed to easing trade imbalances.
Export and Import Trends
India’s total merchandise exports in February 2025 were valued at $36.9 billion. However, imports slipped to a 22-month low of $50.9 billion, reflecting a broad slowdown in demand for foreign goods. On a year-on-year basis, exports contracted by 10.84% in February 2025, partly due to the base year effect associated with the leap month. Meanwhile, imports saw a steeper decline, shrinking by 16.3% compared to February 2024.
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Implications for the Current Account Balance
The substantial drop in the trade deficit has implications for India’s broader economic outlook. The average trade deficit for the first 10 months of FY2025 stood at over $23 billion, yet the latest data suggests a positive shift. “Given this, we now expect the current account to witness a surplus of around $5 billion in Q4 of FY2025, equivalent to approximately 0.5% of GDP in the ongoing quarter,” said Aditi Nayar, chief economist at ICRA.
Robust Growth in Services Trade
India’s services sector continued to display resilience, with service exports reaching $35.03 billion in February 2025, up from $28.33 billion in February 2024. Service imports stood at $16.55 billion, compared to $15.23 billion in the same period last year. This segment remains a crucial contributor to stabilizing India’s trade balance.
Global Trade Dynamics and Policy Outlook
The latest trade data assumes significance against the backdrop of a depreciating Indian rupee and ongoing uncertainties in U.S. trade policies. Addressing these concerns, Trade Secretary Sunil Barthwal stated, “India is proactively engaged with the U.S. to address trade-related concerns and expand bilateral trade to $500 billion.” These developments will play a key role in shaping India’s external trade strategy in the coming months.
With a narrowing trade deficit and growing service exports, India’s external sector outlook appears to be stabilizing, though global economic conditions and policy responses will remain critical determinants in the near future.
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