India’s trade deficit has narrowed to $14.05 billion in February, marking the lowest level in three years, as petroleum exports to Europe plunged by 30% and gold imports dropped by 60%. According to data from the Ministry of Commerce and Industry, the reduced deficit follows a combination of global trade pressures and domestic policy responses.
A significant factor in the trade deficit reduction is the sharp decline in petroleum exports, particularly to Europe, as a result of the United States’ sanctions on Russian oil announced in January. These sanctions restricted 183 oil tankers, affecting global oil trade dynamics. Additionally, India’s petroleum imports also decreased by 26%, contributing further to the narrowing of the deficit.
Overall exports fell by 10.8%, totalling $36.9 billion, marking the fourth consecutive month of decline. However, imports experienced a more substantial drop of 16.3%, reaching $50.96 billion, the lowest level since April 2023. Notably, non-petroleum and non-gems exports fell by 5%, with key sectors such as chemicals and gems and jewellery facing declines of 24.5% and 20.7%, respectively.
Despite these challenges, Commerce Secretary Sunil Barthwal remains optimistic, forecasting that India’s total exports for the fiscal year will exceed $800 billion. ICRA’s chief economist, Aditi Nayar, also sees potential benefits from the reduction in the trade deficit, predicting a current account surplus of $5 billion in Q4FY25, roughly 0.5% of GDP.
On a brighter note, services exports saw significant growth, increasing by 23% to $35 billion in February, contrasting with a slower pace of merchandise trade. Services imports also rose by 8.6% to $16.5 billion.
Experts caution that growing US protectionism and shifting global trade policies could disrupt international trade further. However, India’s resilience, as highlighted by Pankaj Chadha, chairman of EEPC India, and Ashwani Kumar, president of the Federation of Indian Export Organisations, suggests that the country is navigating these pressures effectively. The reduction in the trade deficit signals a rebalancing of India’s trade sector, with reduced reliance on foreign goods offering opportunities for domestic industries to grow.
