India’s February goods trade deficit has dropped to a three-and-a-half-year low of $14.05 billion. In fact, when considering both goods and services, the country posted a small surplus of around $5 billion in February. While this is positive news amid rapid outflows from the capital account, a more concerning development could be that the sharp decline in goods imports in February signals a slowdown in economic activity.
Let’s look at the details: India’s trade deficit in February 2025, at $14.05 billion, is the lowest since August 2021. In fact, from May to August 2021 and for much of 2020, the trade deficit was below $14 billion, as both India and the rest of the world were producing less due to pandemic-related shutdowns and supply chain disruptions. So, the fall in imports in February is particularly striking.
Both imports and exports fell in February. Exports dropped 11% to $36.91 billion compared to February of the previous year, while imports fell 16% to $50.96 billion.
The year-on-year decline could be partially explained by the extra working day in February of last year due to the leap year, but this can only account for a 2-3% decrease at most. The 16% drop in imports was driven by lower purchases of key industrial inputs such as petroleum & crude (down 30%), coke (down 36%), iron & steel (down 23%), and transport equipment (down 17%). Additionally, two major consumption items—gold and silver—saw imports fall by 62% and 75%, respectively.
Commerce ministry officials suggested that the decline in imports was likely due to lower commodity prices, such as crude oil and coal. They also noted that gold and silver became too expensive to import. However, a 16% drop in imports is significant and cannot be easily dismissed, as it could reflect an economic slowdown. This is particularly concerning because February’s PMI manufacturing index hit a 14-month low, and auto sales—especially entry-level cars and motorcycles—performed poorly.
That said, there is a counterpoint to the slowdown argument — services exports grew by a strong 24%. Aside from the growth in services, the February trade data also presents positives for the rupee. The country is on track to post a current account surplus not just for February, but also for March, which is typically a strong month for exports. In reaction to the February trade surplus, the rupee strengthened on Monday, moving from an opening level of 86.96/$ to 86.80/$ by the close.
Economists now forecast that India will record a current account surplus of around $20 billion for the January-March quarter. As a result, full-year current account deficit estimates are expected to be revised down from 1%-1.2% of GDP to around 0.7% of GDP. However, the rupee isn’t entirely out of the woods. A potential challenge could arise on April 2, when reciprocal tariffs from the US may take effect.
—The author, Latha Venkatesh, is Consulting Editor with CNBC TV18. The views are personal.