India's Trade Deficit Eases to $21.9Bn in May; Geopolitical Uncertainty Clouds Outlook

India’s trade deficit narrowed to $21.88bn in May from $26.43bn in April, according to data from the Ministry of Commerce and Industry. The fall came as total imports declined largely due to a drop in oil prices, while total exports grew on the back of a strong performance by the services sector.

During the month, total exports slipped 2.3% year-on-year to $38.7 billion, largely due to reduced shipments of petroleum products like petrol and diesel amid falling crude prices. Imports also declined, dropping 2.8% to $60.6 billion, as lower prices of crude oil and gold helped reduce the overall import bill.

So far this fiscal year, merchandise exports have inched up 0.6%, while imports are down by 6.6% compared to the same period last year.

According to commerce secretary Sunil Barthwal, India has done extremely well despite global policy uncertainties regarding trade and conflicts, clocking positive export growth in the first two months of the ongoing fiscal.

"For May, there is positive growth in non-petroleum exports because petroleum, in times of crisis, there is a lot of volatility,” The Hindu quoted Barthwal from briefing on the trade data. “Currently, there is new volatility that has come. And we have also seen, in the last two months, there was a sustained fall in prices in petroleum, which has got a dampening impact on exports,” he added.

Risks from Geopolitical Tensions

Meanwhile, Japanese financial services firm Nomura flagged the potential impact of geopolitical tensions—particularly the recent escalation between Israel and Iran—on India’s current account. The firm noted that a 10% rise in crude oil prices could widen India’s current account deficit (CAD) by around 0.4% of GDP.

Nomura also pointed to challenges faced by Indian industries, especially automakers, due to a global shortage of rare earth magnets. The shortfall has been linked to ongoing trade tensions between China and the United States. The automobile sector alone contributes around 5% to India’s total merchandise exports, while electronics and engineering goods together account for roughly 35%.