India’s Trade Gap Reduces

TTrade Deficit:

1. A trade deficit happens when a country imports more goods and services than it exports.
2. A high trade deficit means more money is going out of the country than coming in.
3. A lower trade deficit is usually better for the economic stability of a country.

Key Terms:

1. Exports
   1. Goods and services that a country sells to other countries.
   2. They bring money into the country and are important for economic growth.
   3. Total Exports: The combined value of merchandise and services sold to other countries.
   4. Service Exports: When India sells services like IT, software, banking, etc., to other countries.
   5. Merchandise Exports: These are physical goods like textiles, electronics, machinery, etc., sold to other countries.
   6. Non-Petroleum Exports: These are exports of goods excluding oil and petroleum products.
2. Imports:
   1. Goods and services that a country buys from other countries.
   2. High imports mean more outflow of money from the country.
   3. Merchandise Imports: Physical goods that India buys from abroad, such as oil, electronics, gold, etc.
   4. Non-Petroleum Imports: Imports that exclude crude oil and petroleum products.
   5. Services Imports: Services bought from other countries, like foreign consultancy or software.
3. Trade Balance:
   1. It is the difference between exports and imports of a country.
   2. If imports > exports → Trade Deficit
   3. If exports > imports → Trade Surplus

Challenges

Way Forward

1. Oil Price Volatility: Global oil prices keep changing, raising India’s import bill, especially for crude oil.

1. Diversify Export Basket: Boost non-oil exports like electronics, pharma, green tech to reduce dependency on oil.

2. Low Merchandise Export Growth: India’s goods exports are weak and less competitive globally.

2. Make Exports Competitive: Improve product quality, support MSMEs, and sign trade agreements

3. Overdependence on Services Exports: Too much reliance on IT & service exports is risky in global slowdowns.

3. Balanced Export Strategy: Strengthen manufacturing exports to reduce risk from service dependency.

4. High Dependence on Imports: India imports many essential items like electronics, fuels, chips.

4. Import Substitution: Promote domestic production of key goods (like semiconductors, solar modules) under schemes like PLI.

5. Weak Trade Infrastructure: Poor logistics, port delays, and high costs affect trade.

5. Improve Trade Infrastructure: Build better ports, roads, and digital systems to lower cost and time.

Ensure IAS Mains Question:

Q. India’s trade performance in recent months shows contrasting trends in goods and services. Analyse the reasons and suggest steps to strengthen overall export growth.(150 words)

Ensure IAS Prelims Question:

Q. With reference to India’s trade trends in May 2025, consider the following statements:

1. Service exports showed a higher growth rate than merchandise exports.
2. Non-petroleum imports declined significantly.
3. A positive trade balance in services helped reduce the overall trade deficit.

Which of the statements given above is/are correct?

1. 1 and 2 only
2. 1 and 3 only
3. 2 and 3 only
4. 1, 2 and 3

Answer: b

Explanation:

Statement 1 is correct: In May 2025, service exports grew by 9.4%, while merchandise exports contracted by 2.2%, indicating stronger performance of services over goods.

Statement 2 is incorrect: Non-petroleum imports actually increased by 10% in May 2025, showing higher demand for non-oil goods.

Statement 3 is correct: The surplus in services trade helped offset the deficit in merchandise trade, leading to an overall narrowing of India’s trade deficit to $6.6 billion.