With a record $776.68 billion worth of exports in FY24, India's trade deficit narrows to $78 billion

(File) A ship anchored at Visakhapatnam Seaport in Visakhapatnam, India. Image: Abhijit Bhatlekar/Mint via Getty Images
 
India’s trade deficit significantly improved in FY 2023-24. According to latest data from the Ministry of Commerce and Industry, India’s trade deficit in FY 2023-24 is estimated to be $78.12 billion, an improvement of 35.77 percent compared to FY 2022-23, when it was $121.62 billion. India’s overall trade in FY 2023-24 is estimated at $776.68 billion worth of exports and $854.8 billion worth of imports.

Reduction in imports is the primary factor behind the improvement in trade deficits, as exports remain stagnant with nominal changes. While imports have fallen by $43.21 billion, from $898.01 billion in FY23 to $854.80 billion in FY24, exports have risen by only $0.28 billion in the same period.

Merchandise trade, which caused the bulk of the trade deficit to India, saw a decrease in both imports and exports. While merchandise imports decreased by $38.73 billion—from $715.9 billion in FY23 to $677.24 billion in FY24—exports decreased by $14 billion, from $451 billion to $437 billion. India’s trade deficit from its merchandise trade is estimated to be $240 billion in FY24.

“One of the primary reasons for India's merchandise trade deficit is its reliance on imported inputs, including crude oil and pharmaceutical ingredients. Fluctuations in global oil prices significantly impact the trade deficit, as 88 percent of India’s input bill is dedicated to crude oil,” says Dr Nilanjan Banik, economist at Mahindra University. He adds that India needs to diversify its energy sources and promote domestic production of pharmaceutical ingredients to reduce its imports.

India’s services trade showed an overall improvement in both import and export, leading to a trade surplus of $162 billion in FY24 in the services trade category, which was $143 billion last year. Services exports are estimated to be $339 billion in FY24, an increase of $14 billion from the previous year, while services imports are estimated to be $177.5 billion, a decrease of $4.5 billion from the previous year.

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Banik says concerted efforts are needed from both the government and businesses to maximise services exports. “By actively negotiating FTAs to expand market access for Indian services implementing supportive policies, such as tax incentives and regulatory reforms, the government can incentivise service sector growth.”

In FY24, there was a notable surge in the export of electronics, pharmaceuticals, dairy, and agricultural products. Exports of pharmaceutical products rose by 9.67 percent, reaching $27.85 billion in total. Exports of electronic items climbed by 23.64 percent, totalling $29 billion. Similarly, exports of fruits and vegetables rose by 13.8 percent, spices by 12 percent, and meat and dairy products by 12.3 percent.