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India’s overall trade deficit narrowed by approximately 30 percent in May, driven by a substantial increase in exports fueled by the Indian government’s aggressive push for Free Trade Agreements (FTAs) to strengthen bilateral and regional trade through preferential subsidized tariffs. The decline in India’s trade balance was further supported by a sharp fall in crude oil prices, which reduced the value of imported goods.
The Ministry of Commerce and Industry reported India’s overall trade deficit at US$ 6.6 billion in May, nearly 30 percent lower than the US$ 9.35 billion recorded in the corresponding month of the previous year. Total exports rose to US$ 71.12 billion in May 2025, compared to US$ 69.20 billion in the same month last year, while overall imports declined marginally to US$ 77.75 billion from US$ 78.55 billion during the same period.
“Despite global economic headwinds, India’s overall exports (merchandise and services combined) demonstrated resilience, registering a 2.8 percent growth in May 2025. Total exports reached US$ 71.12 billion, up from US$ 69.20 billion in May 2024. This uptick was primarily driven by continued strength in services exports, particularly in software, consultancy, and financial services,” said S. C. Ralhan, President of the Federation of Indian Export Organisations (FIEO).
Merchandise export slows
The Commerce Ministry's data indicated a slowdown in India’s merchandise exports, which fell to US$ 38.73 billion in May 2025 from US$ 39.59 billion in the same month last year. On the import side, merchandise imports declined modestly to US$ 60.61 billion in May 2025 from US$ 61.68 billion in the previous year, reflecting a combination of softening domestic demand and lower global commodity prices. Overall imports (goods and services combined) also registered a marginal dip to US$ 77.75 billion, compared to US$ 78.55 billion in May 2024, indicating stable domestic demand for essential inputs and services.
Key drivers of merchandise export growth in May 2025 included electronic goods, organic and inorganic chemicals, drugs and pharmaceuticals, marine products, and readymade garments (RMG) of all textiles. Shipments of electronic goods surged by 54.10 percent, rising from US$ 2.97 billion in May 2024 to US$ 4.57 billion in May 2025. Exports of organic and inorganic chemicals increased by 16 percent to US$ 2.68 billion in May 2025, up from US$ 2.31 billion in the same month of the previous year.
Similarly, drugs and pharmaceuticals exports grew by 7.38 percent, reaching US$ 2.48 billion in May 2025 from US$ 2.31 billion in May 2024. Marine products exports rose significantly by 26.79 percent, from US$ 0.58 billion in May 2024 to US$ 0.73 billion in May 2025. Exports of RMG of all textiles also registered an increase of 11.35 percent, climbing to US$ 1.51 billion in May 2025 from US$ 1.36 billion in the same month of the previous year.
Robust service exports
Conversely, India’s services exports registered a growth of 9.39 percent, rising to US$ 32.39 billion in May 2025 from US$ 29.61 billion in the same month of the previous year. Simultaneously, imports in the services sector increased to US$ 17.14 billion in May 2025, compared to US$ 16.88 billion in May 2024.
Ralhan highlighted that the latest trade figures reflect the robust performance of India’s services sector, which continues to act as a buffer against challenges such as muted global demand, geopolitical tensions, and high interest rates. “While merchandise exports dipped slightly to US$ 38.73 billion from US$ 39.59 billion in May 2024, the overall export growth underscores the resilience and diversification of India’s export base. Exporters are adapting well to a tough global environment. The ability to sustain export growth despite logistical disruptions, especially in the Middle East, is a testament to the sector’s agility and policy support,” Ralhan added.
The decline in merchandise imports could also signify the growing success of import substitution and domestic capacity building, aligning with the government’s push for self-reliance. To sustain and accelerate export growth, there is an urgent need for continued support for micro, small, and medium enterprises (MSMEs) through the Interest Equalisation Scheme, expedited Free Trade Agreement (FTA) negotiations to boost market access—particularly a Bilateral Trade Agreement (BTA) with the U.S.—simplification and digitization of trade procedures to reduce transaction costs, and addressing procedural issues to make e-commerce exports seamless.
Meanwhile, the Federation of Indian Export Organisations (FIEO) urged the government to maintain a sharp focus on sector-specific issues and capitalize on India’s growing services strength by investing in digital infrastructure, talent development, and targeted global promotion. With appropriate policy interventions and an expected stabilization of global conditions in the second half of 2025, India is well-positioned to regain a strong export growth trajectory.
Resilient engineering exports
The engineering exports sector continues to demonstrate resilience despite persistent global challenges. Although it recorded a marginal dip in shipments during May 2025, cumulative figures remain positive. According to official data, engineering goods exports declined by 0.8 percent year-on-year in May 2025, totalling US$ 9.89 billion compared to US$ 9.97 billion in the same month last year. Cumulatively, engineering exports during April-May 2025 reached US$ 19.40 billion, up from US$ 18.52 billion during the same period last year, registering a growth of 4.7 percent.
“The overall global situation remains volatile. Geopolitical tensions in key parts of the world are mounting uncertainty. The latest Israel-Iran conflict threatens to amplify challenges for the exporting community. Beyond the rise in input costs due to the jump in crude oil prices, there are heightened concerns about the potential blocking of the Strait of Hormuz by Iran if tensions escalate. Such a scenario could cause logistics costs to surge significantly,” said Pankaj Chadha, Chairman of the Engineering Exports Promotion Council (EEPC).
The doubling of tariffs by the U.S. on steel, steel products, and aluminium to 50 percent is already posing a threat to engineering shipments in the current fiscal year. It is expected that once India and the U.S. reach an agreement, these tariffs will be reduced, alleviating some pressure on the sector.
India-US trade agreement
Amid Commerce Minister Piyush Goyal's optimism about finalizing an agreement with the United States before the July 9 deadline—the end of a three-month tariff ceasefire announced after initial tariff impositions—India has engaged in multiple rounds of negotiations with U.S. officials. These discussions have focused on resolving issues related to market access, tariffs, and regulatory barriers.
The Ministry of Commerce and Industry reported that India’s overall exports to the United States reached US$ 17.25 billion during April-May 2025, an increase from US$ 14.17 billion in the same period last year. This growth indicates that the recent U.S. tariff hikes, averaging 10 percent in early April, have had a limited impact thus far. Meanwhile, Indian exporters remain cautious as uncertainty persists regarding the 90-day ceasefire on reciprocal duties, including the potential continuation of a 26 percent tariff on Indian goods.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
