India’s Trade Deficit Narrows

Context

The Ministry of Commerce and Industry released monthly trade data showing a significant narrowing of India’s trade deficit to $6.6 billion in May 2025, a nearly 30% reduction from May 2024. The improvement is primarily due to a fall in oil import bills and robust growth in services exports, especially in non-petroleum merchandise exports.

Key Trade Indicators – May 2025:

Total Exports: $71.1 billion (? 2.8% YoY)
- Services Exports: $32.4 billion (? 9.4%)
- Merchandise Exports: $38.7 billion (? 2.2%)
  - Non-petroleum Merchandise Exports: ? 5.1%
Total Imports: Contracted by 1% YoY
- Merchandise Imports: ? 1.7%
- Non-petroleum Imports: ? 10%
- Services Imports: ? 1.5%
Trade Deficit (Overall): $6.6 billion

Petroleum Price Volatility Impact:

Crude oil price decline led to reduced petroleum export value.
Non-petroleum export growth cushioned the impact on total exports.
Global oil price fluctuation remains a key factor influencing both import and export performance.

Economic Implications:

Improved CAD Outlook: A narrower trade deficit reduces pressure on the Current Account Deficit (CAD).
Forex Stability: Lower import bill aids in preserving foreign exchange reserves.
Sectoral Shift: Increased reliance on services and non-petroleum exports diversifies India’s export basket.