Context
- India’s exports fell by 10.9% to $36.91 billion. Imports declined by 16.3% to $50.96 billion. The trade deficit shrank to $14 billion, the lowest in over 42 months.
Reasons for the Shrinking Trade Deficit
- A high base effect from last year’s leap year contributed to the decline.
- U.S. importers holding back orders due to anticipated reciprocal tariffs from April 2, as announced by U.S. President Donald Trump on February 13.
Impact of U.S. Tariffs & Bilateral Trade Relations
- The U.S. is India’s second-largest trading partner ($118.3 billion trade last fiscal year).
- The U.S. is the only major trade partner with which India has a trade surplus.
- The Trump-Modi meeting outlined a plan to boost bilateral trade to $500 billion and finalize a Free Trade Agreement (BTA).
- Commerce Minister Piyush Goyal’s talks with U.S. officials yielded no major breakthrough on tariff concerns.
Sharp Decline in Imports
- Gold imports fell by 62% due to domestic gold prices surging to ₹87,886 per 10 grams.
- Oil imports dropped nearly 30% as India diversified crude oil sources in response to U.S. sanctions on Russian producers.
Implications & Need for Diversification
- If the U.S. neutralizes its trade deficit with India, India’s overall trade deficit may widen by 15%.
- Heavy dependence on the U.S. is a risk; India should diversify trade markets.
- China & U.K. identified as potential markets:
- China: Major contributor to India’s trade deficit for over 5 years.
- U.K.: India’s trade deficit with the U.K. is less than 3% of its total deficit.
- Ongoing FTA talks with the U.K. could help India improve its trade balance.