India's Trade Deficit Widens amid Fresh Decline in Exports and Surge in Imports

Moneylife Digital Team 19 February 2025

Economy & Nation

India's trade deficit widened significantly in January 2025, as merchandise exports fell while imports surged, reflecting ongoing economic pressures and shifting global trade dynamics.

According to data released by CRISIL Ratings, India's merchandise exports declined by 2.4% year-on-year (y-o-y) to US$36.4bn (billion) in January, marking the third consecutive month of contraction. The primary driver of this decline was the continued slump in oil exports, which fell for the eighth straight month, alongside lower global crude prices. However, robust growth in gems and jewellery exports (15.9%) and core exports (14.4%) partially cushioned the overall drop.

Meanwhile, merchandise imports rose sharply by 10.3% y-o-y to US$59.4bn in January, following a 4.9% increase in December 2024. The import surge was primarily fuelled by strong demand for core goods and gems and jewellery. Notably, gold imports jumped 40.8%, although the pace slowed from the previous month's 55.4% rise as seasonal demand eased post-wedding and festive seasons. Core imports saw a substantial uptick of 20.4% on-year, accelerating from 3.9% growth in December.

On a cumulative basis, merchandise exports between April 2024 and January 2025 increased marginally by 1.4% to US$358.9bn. However, imports grew at a significantly faster pace of 7.4%, reaching US$601.9bn, resulting in a widening trade deficit of US$243bn compared to US$206.3bn in the same period a year earlier.

CRISIL says the growing imbalance between exports and imports led to a sharp rise in India's trade deficit, which expanded to US$23bn in January, up from US$21.9bn in December and US$16.6bn a year ago. The widening deficit was also reflected in the depreciation of the Indian rupee, which weakened to 86.3 per US dollar in January from 85 in the previous month, it added.

While India's services exports provided some relief, growing at 16.5% y-o-y in December, the overall trade deficit remains a key concern. Services import growth moderated to 13.8% during the same period, leading to a services trade surplus of US$19.1bn, up from US$16bn a year ago.

According to the rating agency, persistent geopolitical uncertainties and potential tariff hikes by the US could further impact India's export performance. Additionally, a slowdown in the Chinese economy could lead to increased exports from China to Asian markets, intensifying competition for Indian goods.

Despite these challenges, CRISIL highlights that India's strong services sector and steady remittance inflows provide some stability to the country's current account. The rating agency projects India's current account deficit to remain at about 1% of gross domestic product (GDP) for FY24-25, keeping the broader macroeconomic balance in check.

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