India’s Trade Deficit Shrinks by 9.4% in Q1, Boosted by Strong Services Exports

New Delhi, July 16, 2025:
India’s overall trade deficit narrowed to $20.3 billion in the first quarter of financial year 2025–26, marking a 9.4% improvement over the same period last year. This positive trend has been largely attributed to robust growth in services exports, which rose by nearly 11%, according to the Ministry of Commerce and Industry.

The data, released on Tuesday (July 15), comes as a welcome sign for policymakers and trade analysts who had been closely watching the impact of slowing global demand, geopolitical tensions, and currency fluctuations on India’s trade.

Exports Rise to $210.3 Billion in April–June 2025

The combined value of India’s merchandise and services exports rose to $210.3 billion during April–June 2025, up from $198.5 billion during the same quarter last year. This represents a healthy 6% year-on-year growth, with services contributing significantly to the surge.

“If exports grow the way they have grown in quarter one of this financial year, then we are going to beat last year’s record exports,” said Commerce Secretary Sunil Barthwal at a press briefing in New Delhi.

He added, “Both merchandise as well as services are in positive territory and better than what was expected by the [World Trade Organisation] WTO in terms of world trade.”

Breakdown: Services Lead the Charge

India’s services exports saw double-digit growth, with sectors such as IT and business consulting, travel, financial services, and telecommunications contributing the most.

• Services exports increased nearly 11% in the quarter.

• Merchandise exports also remained in the green, although at a more modest growth rate.

• The exact merchandise export figures are expected to be released later this week.

This surge in services helped offset the impact of import costs, especially in energy and gold.

Deficit Contracts from $22.4 Billion to $20.3 Billion

In the same quarter of FY2024–25, India’s overall trade deficit stood at $22.4 billion. The 9.4% reduction reflects the strength of export performance, especially in the services sector, and more stable global trade dynamics.

Economists say this is a positive signal for India’s current account balance, which may also improve if export momentum continues and oil prices remain under control.

On Track to Surpass $825 Billion Record

India had posted record exports worth $825 billion in the previous financial year (FY2024–25).

• If the current growth trend continues, India could surpass that figure in FY2025–26.

• Officials remain confident about maintaining this trajectory, despite global economic headwinds.

“We are encouraged by the performance of India’s trade sector, especially in services. It shows our efforts to diversify export markets and expand in high-value services are paying off,” Barthwal noted.

Performance Better than Global Averages

The World Trade Organisation (WTO) had previously projected modest global trade growth for 2025 due to ongoing geopolitical instability, inflation concerns in the West, and currency depreciation in developing markets.

However, India’s export performance in the first quarter has outpaced WTO projections, providing a rare silver lining amid subdued international demand.

Sector-Wise Export Highlights

Though granular data by sector will be shared in the full quarterly report, early trends suggest:

• IT and Software Services: Continued to be the top performer, with stable global demand for Indian tech services.

• Tourism & Travel: Witnessed a strong rebound, helped by easing global travel restrictions and India’s promotion of inbound tourism.

• Engineering Goods: Saw moderate growth in markets like the Middle East and Southeast Asia.

• Pharmaceuticals: Maintained export momentum, particularly to African and LATAM countries.

• Textiles & Apparel: Registered a slight uptick after a sluggish 2024.

Imports Also Under Check

While exports rose, import growth remained contained, supporting the narrowing deficit.

• Crude oil and gold imports stayed stable compared to the previous year.

• A slight decline in non-essential consumer imports helped ease overall import bills.

Officials stressed that better inventory planning, currency management, and domestic production substitution also played a role in controlling import pressure.

Policy Measures Supporting Exports

India’s robust export performance in Q1 can be partly attributed to proactive trade facilitation measures:

• Interest equalisation schemes for MSME exporters were extended and expanded.

• Production-linked incentives (PLIs) helped sectors such as electronics and medical devices gain global traction.

• Export infrastructure initiatives and simplification of customs procedures enabled faster shipment clearance.

• Enhanced Free Trade Agreements (FTAs) with Australia, UAE, and talks with UK and EU helped in market diversification.

Challenges Ahead: Global Uncertainties Remain

Despite the upbeat numbers, experts warn that India’s trade sector is not immune to global challenges:

• Geopolitical conflicts like Russia-Ukraine and tensions in the Taiwan Strait may affect shipping lanes and demand.

• High interest rates in developed economies could lead to slower consumption and thus lower import demand from India’s major partners.

• Currency fluctuations may also impact profit margins, particularly for MSMEs.

Commerce officials say they are closely monitoring all macroeconomic indicators and are prepared to intervene if needed to support exporters.

Outlook: Moderate Optimism for FY2025–26

With one strong quarter already in the bag, the government expects steady performance over the rest of the financial year.

• The Monsoon session of Parliament is expected to review trade incentive schemes for further optimisation.

• New bilateral and regional trade deals are expected to open more export markets.

• The Digital Trade Policy, expected to be released later this year, could give services exports a further boost.

Conclusion

India’s narrowing trade deficit and strong services export growth in the first quarter of FY2025–26 present a positive and stable economic signal. The continued performance of India’s export sector, particularly in high-value services, offers hope of surpassing the record $825 billion exports from last year.

With both merchandise and services exports in positive territory, the government remains cautiously optimistic that the Indian economy will stay resilient amid global uncertainties. If current momentum is maintained, India is well on its way to further solidifying its place as a leading player in the global trade landscape.

The Upcoming IPOs in this week and coming weeks are Savy Infra, NSDL.

The Current active IPO are Monika Alcobev, Anthem Biosciences, Spunweb Nonwoven.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.