India’s Trade Deficit Shrinks to Lowest Level Since 2021 – What’s Behind the Change?

• India’s trade deficit narrowed to $14.05 billion in February 2025, down from $23 billion in January.
• Exports fell by 10.9%, but imports dropped even more by 16.35%, leading to a lower trade gap.
• Services exports surged by 23.6%, helping India maintain an overall trade surplus of $4.43 billion.

Why Did India’s Trade Deficit Shrink?

The significant drop in India’s trade deficit is mainly due to a sharp decline in imports, which fell faster than exports. This marks the lowest trade gap since August 2021, according to the Commerce Ministry. The reduction comes despite global trade challenges and fluctuating demand in key sectors.

While merchandise exports fell by 10.9% in February, some categories showed resilience. Electronic goods exports grew by 26.46%, ready-made garments increased by 3.97%, and rice exports rose by 13.21%. However, subdued global demand and ongoing tariff wars have impacted other export sectors, as highlighted by the Federation of Indian Export Organisations (FIEO).

FIEO has urged the government to expand the Production-Linked Incentive (PLI) scheme and provide better financing options for exporters. Strengthening India’s integration into global value chains and resolving non-tariff barriers are seen as critical for ensuring sustained export growth.

What’s Next for India’s Trade?

Despite current challenges, India’s overall exports are expected to cross $800 billion in FY25, according to government estimates.

On a cumulative basis from April 2024 to February 2025, merchandise exports reached $395.63 billion, while imports stood at $656.68 billion, widening the overall deficit. However, strong growth in services exports, which rose 23.6% year-on-year, has helped balance the trade situation.

With India’s services sector booming and strategic policies in place to support exports, the country is taking steps to strengthen its global trade position. The coming months will be crucial in determining whether India can sustain this positive trend and navigate global trade uncertainties successfully.