The contraction in exports is attributed to a combination of factors, including subdued global demand and restrictive trade practices by major economies. Notably, sectors such as petroleum products, gems and jewellery, and textiles witnessed significant declines. Petroleum product exports, a substantial contributor to India's export basket, were impacted by softening global crude oil prices, reducing the value of outbound shipments.
Gems and jewellery exports also suffered due to weakened demand in key markets like the United States and Europe. The ongoing economic slowdown in these regions has led to reduced consumer spending on luxury items, directly affecting India's exports. Similarly, the textile sector faced headwinds as global retailers scaled back orders amidst economic uncertainties, leading to a decline in textile exports.
On the import front, February 2025 saw a substantial reduction, with total imports declining to $50.96 billion from $60.92 billion in February 2024. This decrease is largely due to reduced imports of gold and crude oil. Gold imports fell as domestic demand softened, influenced by high prices and changing consumer preferences. Crude oil imports decreased owing to both lower global oil prices and a shift towards renewable energy sources within the country.
The narrowing of the trade deficit to $14.05 billion is a significant development, marking the lowest level since August 2021. This reduction surpasses economists' expectations, who had anticipated a deficit of $21.65 billion for the month. The lower deficit is a result of the sharper contraction in imports compared to exports, indicating a potential rebalancing of trade dynamics.
Despite the monthly decline, cumulative export figures for the April-February period of the 2024-25 fiscal year show resilience. Merchandise exports during this period stood at $395.63 billion, marginally higher than the $395.38 billion recorded in the same period of the previous fiscal year. This slight growth underscores the adaptability of Indian exporters in navigating challenging global trade environments.
In contrast, merchandise imports for the April-February period increased to $656.68 billion from $621.19 billion in the previous fiscal year. The rise in imports, coupled with stable exports, resulted in a merchandise trade deficit of $261.06 billion for the period, compared to $225.81 billion in the prior year. This widening deficit highlights the need for strategic measures to enhance export competitiveness and manage import dependencies.
The services sector, however, presented a more optimistic picture. Estimated service exports for February 2025 reached $35.03 billion, up from $28.33 billion in February 2024. Service imports also saw an increase, totaling $16.55 billion compared to $15.23 billion in the same month last year. This growth in the services sector contributed to a cumulative services trade surplus of $171.69 billion for the April-February period, up from $149.34 billion in the previous fiscal year.
The combined exports of merchandise and services during April-February 2024-25 are estimated at $750.53 billion, reflecting a growth of 6.24% over the same period last year. Total imports, combining merchandise and services, are estimated at $839.89 billion, resulting in a trade deficit of $89.37 billion for the period.
In response to these developments, policymakers are emphasizing the importance of diversifying export markets and enhancing the competitiveness of domestic industries. Efforts are underway to negotiate favorable trade agreements, reduce logistical bottlenecks, and provide fiscal incentives to key export sectors. Additionally, there is a focus on promoting value-added exports and integrating more deeply into global value chains to mitigate the impact of global economic fluctuations.
Economists suggest that while the narrowing trade deficit is a positive indicator, the decline in both exports and imports signals underlying challenges in the global and domestic economies. They advocate for structural reforms to boost manufacturing capabilities, improve the ease of doing business, and enhance the quality of exported goods and services. Such measures are deemed crucial for sustaining long-term export growth and achieving a balanced trade ecosystem.