India’s merchandise trade deficit narrows to $21.88 billion in May
India’s merchandise trade deficit narrowed to $21.88 billion in May this year from $26.42 billion in April, reflecting a strong external sector. The trade deficit was lower on a year-on-year basis as compared to the corresponding figure of $22.09 billion recorded in May 2024. “Despite global policy uncertainty with regard to trade, we have performed very well,” Commerce Secretary Sunil Barthwal told reporters.
He said exports of electronic goods, including mobile phones, recorded the fastest growth of 54 per cent year-on-year in May.Exports of chemicals grew 16 per cent, while pharmaceuticals grew 7.38 per cent, he said.Merchandise exports declined 2.17 per cent to $38.73 billion in May 2025 from $39.59 billion in May 2024 amid rising geopolitical tensions. However, imports declined 1.7 per cent year-on-year to $60.61 billion during the month compared to $61.68 billion in May 2024.
Meanwhile, the commerce secretary said services trade showed an estimated surplus of $14.65 billion in May as services exports rose to an estimated $32.39 billion while imports rose to $17.14 billion.The data also showed that exports rose to $77.19 billion in the April-May period of the first quarter of the current fiscal, while imports rose to $125.52 billion.
A reduction in trade deficit will strengthen the rupee against the US dollar and comes at a time when the country’s foreign exchange reserves have hit an all-time high.India’s foreign exchange reserves rose by $5.17 billion to $696.66 billion in the week ended June 6, according to data released by the RBI on Friday.
The sharp rise during the week has pushed the country’s foreign exchange reserves close to the historic high of $704.885 touched at the end of September 2024. In the week ended June 6, foreign currency assets, a major component of the reserves, rose by $3.47 billion to $587.69 billion. The gold component of the forex reserves rose by $1.6 million to $85.89 billion during the week. Central banks around the world have been accumulating gold as a safe-haven asset in their foreign exchange reserves amid uncertainty created by geopolitical tensions. Gold reserves currently stand at $83.582 billion. The share of gold held by the Reserve Bank of India (RBI) in its forex reserves has almost doubled since 2021.
An increase in forex reserves reflects strong fundamentals of the economy and gives the RBI more scope to stabilise the rupee when it becomes volatile. A strong forex kitty enables the RBI to intervene in the spot and forward currency markets by releasing more dollars to prevent the rupee from going into a free fall.
