India’s external trade performance in December reflected resilience in exports amid mounting global uncertainties, even as the trade deficit widened sharply due to a surge in imports. Data released by the commerce department showed that merchandise exports rose 1.8 per cent year-on-year to $38.51 billion, offering some relief at a time when global demand remains fragile.

However, faster import growth offset these gains, leading to a notable expansion in the trade deficit, highlighting the ongoing challenges facing India’s trade balance.

Import Surge Pushes Trade Deficit Higher

In December, inbound shipments rose 8.8% to $63.55 billion. This was mostly due to more imports of crude oil, electronics, and capital goods. The trade deficit grew to $25 billion, up from $20.63 billion in December 2024 and $24.53 billion in November.

Economists say that while strong import growth usually means that there is strong domestic demand, it also puts pressure on the trade deficit, especially when export growth is slow. The numbers from December show that India still relies heavily on imports to meet its needs for consumption and industry.

US Market Performance and Export Trends

In December, exports to the US fell 1.8% year over year to $6.89 billion. This added to worries about the trade deficit. But from April to December, total exports to the US were $65.87 billion, which is a healthy 9.7% increase over the same time last year.

This overall growth has helped keep the trade deficit from getting worse, even though it is still volatile from month to month. The US is still one of India’s biggest trading partners, and the market’s continued demand is seen as key to keeping export earnings stable.

Tariffs, Electronics, and Supply Chain Resilience

Rajesh Agrawal, the Secretary of Commerce, said that India has been able to “hold on well” in exports to the US even though 50 percent tariffs affect almost 55 percent of shipments going out.

“One of the main reasons is electronics exports to the US, which are not subject to the extra tariffs,” Agrawal said at a press conference. He also said that keeping electronics exports growing has been very important in keeping the trade deficit from getting worse.

But Agrawal warned that high tariffs are likely to hurt industries like textiles and leather. Once the data is available, the government will look at it by sector to see how it affects exports and the trade deficit as a whole.

Diversification Strategy to Tackle Trade Deficit

The commerce secretary says that high tariffs are making it harder to get goods to the US, so businesses need to diversify. “We need to make our export supply chain stronger so that it can handle problems better.” He said, “The best way is to rely less on one area.”

Textile manufacturers, in particular, have started to branch out into other markets, which has allowed them to ship more goods even though tariffs are in place. This diversification is expected to be very important in keeping the trade deficit under control in the medium term.

Services Trade Offers Partial Relief

India’s services exports fell 3.97% year over year to $35.5 billion in December. This was mostly because of a high base effect. Imports of services also fell by 2.35 percent to $17.38 billion, leaving a services trade surplus of $18.12 billion.

This surplus helped a little with the growing merchandise trade deficit, which shows how important services are for keeping India’s external accounts in balance. The commerce department said that the services trade data for December is not final and will be changed based on numbers from the Reserve Bank of India.

Outlook: Managing the Trade Deficit Ahead

Analysts think that India’s strong exports are a good sign, but the growing trade deficit is still a big worry because of global economic uncertainty, unstable commodity prices, and geopolitical risks. In the coming months, it will be important to manage the trade deficit and keep the external sector stable by making exports more competitive, expanding market diversification, and keeping services exports strong.

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