The good news is that India’s merchandise trade deficit fell to $27.1 billion in February from the previous month’s $34.7 billion. The bad news is that it has almost doubled over a year, from $14.4 billion in February 2025. The gap widened because of a year-on-year spike in imports of almost a quarter to $63.7 billion, led by gold, silver and electronics, while exports edged down by less than 1 percent to $36.6 billion. The seemingly endless demand for gold drove up its imports by 218 percent to $7.4 billion, while the increasing use of silver in industrial processes pushed up the white metal’s imports to $1.6 billion. Rising oil and gas imports, higher logistics costs and sluggish goods exports aggravated the imbalance.
Another major cause for concern is the ballooning trade deficit with China, which surged to $102 billion during the period from April 2025 to February 2026, compared with $91 billion in the same period the year before. Despite the focus on Make in India, Indian manufacturing appears heavily dependent on crucial raw materials and components, especially for electronics and pharmaceuticals. The flood of a wide variety of low-cost, good-quality consumer goods as well as industrial components from across the border has hurt local industry. Rather than erecting trade barriers, this dependence must be reversed through greater quality and price competitiveness.
The government is rightly worried that the overall trade imbalance may worsen before it improves. Officials see exporters facing demand slowdowns and logistical bottlenecks as the Gulf war widens. After all, West Asia absorbs about $65 billion of Indian merchandise and services exports annually. Meanwhile, America’s high tariff regime has affected exports to that market as well, which fell 12.8 percent from the previous February to $6.9 billion this year. The interim trade deal announced with fanfare now appears likely to miss its March signing target, as agreements on non-tariff and security barriers remain pending. An aid package for exporters, reaching a final deal with the US and working towards an end to the Gulf crisis are among the government’s immediate priorities. In the long term, the answer lies in finding newer markets for exports and greater indigenisation of critical inputs for strategic industries.