India’s merchandise trade deficit narrows to $20.98 billion in June

New Delhi: India’s merchandise trade deficit, which widened to a seven-month high in May, narrowed slightly in June owing to lower imports, showed official data released by the commerce ministry on Monday.

The merchandise trade deficit stood at $20.98 billion in June, down from $23.78 billion in May but up from $19.1 billion in April. It stood at $19.19 billion a year ago. The June figure beat analysts' expectations in a Reuters poll, which had predicted a deficit of $21.5 billion.

Imports and exports up from a year ago

Merchandise exports fell to $35.20 billion in June from $38.13 billion in May, though they remained above the $34.99 billion registered in April. Merchandise imports meanwhile fell to $56.18 billion in June from $61.91 billion in May, but were up from $54.09 billion in April. However, on an annual basis, imports and exports rose from $53.51 billion and $34.32 billion in June 2023, respectively, indicating a pick-up in business activity.

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India's total exports of goods and services may cross $800 billion during FY25, commerce ministry secretary Sunil Barthwal said at a press briefing. "The trend is positive. Exports in the first quarter are the highest in the last 10 years. It's encouraging to see our exports increasing," he said. Growth in merchandise exports in the June quarter was driven by sectors such as engineering, electronic goods and pharmaceuticals, Barthwal added.

Indian exports have been hit by a slowdown in global growth. Interest rate hikes due to persistent inflation, particularly in Western economies, has slowed business, investment and trade. Geopolitical challenges such as the conflicts in West Asia, Ukraine and the Red Sea, have also affected global trade.

Performance by sector

Services exports stood at $30.27 billion in June, up from $30.16 billion in May and $27.79 billion in June 2023. Services imports remained flat at $17.29 billion in June from $17.28 billion in May, but higher than the $15.61 billion recorded in June 2023.

The total trade deficit, including merchandise and services, was $8 billion in June, down from $10.90 billion in May but higher than $7 billion in June 2023.

The main drivers of merchandise exports in June included engineering goods, electronic goods, drugs & pharmaceuticals, coffee and organic & inorganic chemicals. According to official data, engineering goods exports increased 10.27% year-on-year to $9.39 billion in June. Electronic goods exports rose 16.91% year-on-year to $2.82 billion, while pharmaceutical exports increased by 9.93% to $2.47 billion.

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Imports of gold, fertilisers, cotton, chemical products, pearls, precious & semi-precious stones, leather & leather products, coal, coke & briquettes, and transport equipment fell in June from the same month last year. During the month, India's top export markets were the US, UAE, Malaysia, Bangladesh and Tanzania, and its top sources of imports were the UAE, China, Russia, Indonesia and the US.

Owing to the slightly faster growth in imports vis-à-vis exports, the merchandise trade deficit expanded to $62.3 billion in the June quarter of FY25 from $56.2 billion in a year ago, said Aditi Nayar, chief economist and head of research and outreach at ICRA Ltd. "This is expected to push up India’s current account deficit to about 1.4% of GDP from 1% in Q1 FY24 and turn around the transient surplus of 0.6% of GDP seen in Q4 FY24," Nayar added.

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