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Trade deficit narrows in May’25

Led by a decline in imports

* India’s trade performance in May’25 showed encouraging signs, supported by a narrower goods deficit, a resilient services surplus, and robust electronic goods exports.

* Merchandise exports stood at USD38.7b in May’25, registering a decline of 2.2% YoY (lowest in four months) from USD39.6b in May’24, but slightly better than USD38.5b in Apr’25. The decline in merchandise exports was led by the four-month lowest growth in petroleum exports (-30.3% YoY in May’25 vs. 4.7%/38.3% in Apr’25/May’24) and threemonth lowest growth in gems & jewelry exports (-13.9% YoY in May’25 vs. 10.7%/-2.2% in Apr’25/May’24). On the other hand, non-oil-non-gems & jewelry exports grew decently at 6.9 % YoY in May’25 from 10.1%/9.3% in Apr’25/May’24 (Exhibit 1).

* Major growth drivers of merchandise exports in May’25 include Electronic Goods, Organic & Inorganic Chemicals, Drugs & Pharmaceuticals, Marine Products, and RMG of all Textiles. Electronic Goods exports increased by 54.1%, rising from USD2.97b in May’24 to USD4.57b in May’25.

* Merchandise imports declined 1.7% to USD61b in May’25, down from USD65b (19% YoY) in Apr’25 and USD62b (7.3% YoY) in May’24. Imports of Pulses (-51.9%), Transport Equipment (-28.2%), Fertilizers, Crude & Manufactured (-26.6%), Petroleum, Crude & Products (-26.1%), Newsprint (-20.6%), Coal, Coke & Briquettes (-19.4%), Pearls, Precious & SemiPrecious Stones (-18.5%), Ores & Other Minerals (-13.5%), Gold (-12.6%), and Vegetable Oil (-3.6%) recorded negative growth in May’25 over the corresponding month of last year.

* Consequently, the merchandise trade deficit narrowed to USD21.9b in May’25 (vs. USD22.1b in May’24 and USD26.4b in Apr’25), mainly led by a decline in imports. The merchandise trade deficit for May’25 was lower than the market consensus of USD25b (Exhibit 3).

* In Apr-May’25, exports grew 3.1% vs. 0.1% in FY25. On the other hand, imports grew faster at 8.1% in Apr-May’25 vs. 6.2% in FY25 (Exhibit 4).

* India is projected to exceed USD900b in combined exports (goods + services) in FY26, signaling strong trade momentum. However, global uncertainties such as oil price volatility, evolving US tariffs, and China’s export restrictions (which may disrupt electronics supply chains) pose downside risks.

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