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Rising India’s Merchandise Trade Deficit
Context:
India’s merchandise trade deficit widened to a two-month high of $22.99 billion in January, driven by an increase in imports, according to data released by the Ministry of Commerce.
Decline in Exports and Steady Growth in Imports
- Merchandise exports fell to $36.43 billion in January, down from $38.01 billion in December and $37.32 billion in the same month last year.
- Meanwhile, goods imports saw steady annual growth, reaching $59.42 billion compared to $53.88 billion a year ago.
- In December, imports stood slightly higher at $59.95 billion.
- The trade deficit in December was recorded at $21.94 billion.
- Over the past few months, the deficit had fluctuated significantly, hitting $32.8 billion in November, $27.4 billion in October, and $20.78 billion in September.
A trade deficit occurs when a country’s imports exceed its exports during a specific period. It indicates that a nation is consuming more than it is producing and isn’t saving enough to fund its investment needs.
Cumulative Trade Performance
- For the April 2024–January 2025 period, merchandise exports totaled $358.91 billion, reflecting a 1.39% annual increase.
- Imports during the same period reached $601.90 billion, marking a 7.43% rise.
- India’s services exports grew significantly, reaching $38.55 billion in January, up from $32.66 billion in December and $31.01 billion a year ago.
- Services imports also increased to $18.22 billion in January from $14.84 billion a year earlier and $17.50 billion in December.
- The combined value of merchandise and services exports stood at $74.98 billion in January, up from $70.67 billion in December and $68.33 billion in January 2024.
Impact of Global Economic Trends
- India’s foreign trade has been affected by weak demand in key markets, geopolitical tensions, and volatile commodity prices.
- A slowdown in global economic growth has weighed on export demand, while rising fuel costs have pushed up import expenses.
- In October, the World Trade Organisation (WTO) revised its global trade growth forecast for 2024 to 2.7%, up from an earlier estimate of 2.6%.
- However, it lowered the 2025 projection from 3.3% to 3.0%, expecting trade growth to align with real global GDP expansion at 2.7% based on market exchange rates.
Key Export and Import Sectors
- Exports: Between April and January, major export drivers included electronic goods, engineering goods, rice, ready-made garments, and handloom products.
- Non-petroleum exports in January were valued at $32.86 billion, reflecting a 14.5% annual growth.
- Cumulatively, non-petroleum exports for April–January stood at $305.84 billion, showing a 7.9% increase compared to the previous year.
- Imports: On the import side, key commodities comprised crude oil, petroleum products, electronic goods, and gold.
