India’s trade deficit widened to $41.97 billion in March, a 0.67% increase, as exporters scrambled to ship goods to beat the US administration’s reciprocal tariffs which took effect from April 9. While Washington has temporarily suspended the tariffs, the anxiety surrounding their implementation spurred import activity, which rose 11% year-on-year (YoY) to $63.51 billion.
However, merchandise exports remained stagnant in 2024-25, totalling $437.42 billion — only marginally higher than the $437.07 billion recorded the previous year. The merchandise trade figures failed to show the anticipated pre-tariff export surge, resulting in a higher-than-expected trade deficit. Despite this, India is still projected to register a modest current account surplus of $1–3 billion in Q4FY25, with the full-year deficit expected to be around 0.9% of GDP.
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The widening trade gap in March followed a trade deficit of $14 billion in February. Imports of oil and gold were particularly robust. Oil imports, in particular, surged past $19 billion in March — the highest since May 2024, when they had peaked at $19.95 billion, as per Department of Commerce data.
Import sources and shifting trade dynamics
India’s top five import sources by year-on-year growth in FY25 (April–March) include Thailand (43.99%), UAE (32.06%), China (11.52%), the US (7.44%), and Russia (4.39%), according to data from the commerce ministry. This shift reveals India’s growing dependency on a diverse range of partners, though the strategic reliance on China remains a concern.
In the first half of FY25, exports faltered, largely due to the global decline in petroleum prices and tightening trade policies from the US that began in January. Commerce secretary Sunil Barthwal admitted that FY25 has proven to be a difficult year for Indian trade, marred by geopolitical instability, disrupted shipping lanes, and fears of a global recession. Nonetheless, he maintained that India’s performance has been comparatively resilient.
Total exports of merchandise and services reached $820 billion in FY25, up from $778 billion in the previous year, driven largely by a strong showing from the services sector. In March alone, services exports grew 5.5% to $31.64 billion, while services imports rose 17.3% to $13.73 billion, resulting in a robust surplus of $17.88 billion. The services data remains provisional and is expected to be revised by the Reserve Bank of India.
India-China trade gap nears $100 billion
One of the more troubling developments is India’s ballooning trade deficit with China, which reached $99.2 billion in FY25. This reflects a sharp rise in imports of electronics, machinery, and consumer durables, despite government efforts to curtail dependence on Chinese goods through initiatives such as Make in India.
India’s exports to China are now even lower than they were in 2013-14 — a period when the Indian rupee was far stronger. China may increase its exports to India by up to 20% this fiscal, particularly as Chinese firms reroute shipments meant for the US to other markets, including India.
Trade data shows exports to China declined nearly 3% in March and over 14% for the full financial year. At the same time, imports from China surged 25% in March alone, reaching $9.6 billion. On a cumulative basis, they grew more than 11% YoY to $113.4 billion.
Export outlook clouded by US trade policy
India’s near-term export prospects remain bleak, clouded by the threat of US-imposed sectoral and reciprocal tariffs. Critical sectors like steel, aluminium, and automobiles are particularly exposed. Washington’s proposal for a blanket 10% import tariff on goods from all trading partners has added to the uncertainty.
The export outlook hinges on several variables: whether the US extends or modifies its 90-day pause on tariffs, exemptions for specific electronics items, possible retaliatory measures by affected countries, and new bilateral arrangements being explored by US trade partners. Any resolution or escalation in these areas will significantly impact India’s trade performance.
Managing imports and trade imbalances
The expanding trade deficit reveals the urgency for India to boost export competitiveness and reduce dependency on critical imports. The risk of merchandise dumping looms large, especially from countries like China, Vietnam, and Indonesia, which may look to divert surplus goods to India amid rising US trade barriers.
In anticipation of this, the government has constituted an inter-ministerial committee — comprising representatives from the department of commerce, directorate general of foreign trade (DGFT), central board of indirect taxes and customs (CBIC), and the department for promotion of industry and internal trade (DPIIT) — to monitor import surges and implement safeguard measures.
Equally pressing is the need to address India’s heavy reliance on Chinese imports, especially in high-value sectors such as electronics, industrial machinery, and chemicals. China remains India’s leading supplier across all eight key industrial product categories, posing strategic and economic risks.
As India studies this evolving global trade mechanism, balancing import regulation, export diversification, and domestic manufacturing scale-up will be critical to sustaining growth and securing economic resilience.