India’s goods trade deficit widened to almost $23 billion in January, driven by the falling value of exports amid global uncertainties and a depreciating rupee. Exports fell for the third month in a row, even as imports grew at a faster clip. Within the export basket, petrol and diesel plunged sharply by 58 percent owing to shifting geo-economics, while non-oil exports shot up 14.5 percent. Among imports, gold and electronics increased though oil imports dipped. In all, during the first 10 months of the current fiscal, total exports grew 7 percent to $682.6 billion, while total imports grew faster at about 9 percent to $770.1 billion, widening the cumulative deficit. The depreciating rupee, which has fallen about 1.4 percent against the US dollar so far in 2025, further complicates the country’s trade challenges.
The trade balance counts both goods and services. While our goods trade is often in deficit, services exports often make up for the shortfall. For January, the provisional estimates indicate that services exports shot up 24 percent and the pace is likely to continue, taking the overall trade value to about $800 billion in 2024-25. Historically, India’s trade imbalance is sparked by high imports in sectors such as electronics, machinery and crude oil. A widening deficit leads to currency depreciation, increasing the need to shore up foreign exchange reserves, which in turn help stabilise a falling rupee. To avoid a balance of payments crisis, India must continue building its forex reserves.
Currently, the biggest risk for the global economy is the likely increase in tariffs, which will affect the Indian economy too. Notwithstanding the conventional logic that protectionist policies could worsen inflation and slow economic growth, countries are gearing up to retaliate against the US with additional levies on goods and services. For India, the key structural challenge is its weak manufacturing base, without which export growth in goods is unsustainable. At present, manufacturing’s share remains stagnant at about 17 percent of GDP—something India needs to enhance to narrow the trade imbalance. For now though, our attempts are limited to smartphone production. But the government must review the priorities and roll out strategic measures to increase exports and identify fresh areas where domestic production can be encouraged to reduce import dependency.