India’s trade deficit declined to $14.05 billion in February, marking a significant drop from January’s $22.9 billion. This reduction surpassed economists’ expectations, as a Reuters poll had projected the deficit to ease to $21.65 billion.

Merchandise imports for February amounted to $50.96 billion, a decrease from $60.92 billion recorded in the same period last year. Meanwhile, exports for the month stood at $36.91 billion, down from $41.41 billion in February 2023.

According to government sources cited by Reuters, India’s exports last month were impacted by rising concerns over the potential effects of proposed tariff hikes by former US President Donald Trump.

The oil trade deficit is anticipated to have shrunk in February, driven by a decline in global Brent crude oil prices. Brent crude decreased from $78.35 per barrel in January to $74.95 per barrel in February.

A significant trend observed was the reduction in oil imports from Russia, which dropped by 14.5% month-on-month to 1.43 million barrels per day—the lowest since January 2023. Consequently, Russia’s share in India’s total oil imports fell to approximately 30% in February, marking a notable drop from the 2024 average of around 38%.

Geopolitical Risks and Trade Dynamics

A report from UBI indicated that geopolitical uncertainties, particularly regarding tariffs, are expected to continue influencing trade patterns. The narrowing of India’s trade deficit was largely attributed to a slowdown in the Non-Oil-Non-Gold (NONG) segment, influenced by seasonal factors.

However, despite this improvement, the report warned that the extent of trade recovery might be constrained due to apprehensions over fresh trade barriers and potential tariff hikes following changes in the US administration.

In January, India’s merchandise exports were recorded at $36.43 billion, slightly lower than December’s $38.01 billion. Imports in January stood at $59.42 billion.

Potential Tariff Hikes and Their Implications

The US administration has signaled plans to impose reciprocal tariffs starting April 2, which would adjust import duties to match those levied by other countries on American goods. According to a Bloomberg report, India could be among the most affected nations due to the significant disparity in import duties between the two countries, which averages around 10 percentage points. This fear has resulted in a stock market wide correction amongst Indian indices.

Given that the US is a key market for Indian exports, these tariff adjustments could have a considerable impact. Deepali Agrawal, Deputy Managing Director of EXIM Bank, stated that while the specifics of the tariffs would determine the actual consequences, it is crucial to allow time for the situation to stabilize before drawing definitive conclusions.

India Faces Potential Annual Losses of $7 Billion

Morgan Stanley analysts estimate that India and Thailand could experience tariff increases of 4 to 6 percentage points if the US proceeds with its proposed adjustments. Citi Research projects that such changes could result in annual losses of approximately $7 billion, particularly affecting industries such as automobiles and agriculture.

As per Reuters, India’s exports to the US were valued at nearly $74 billion in 2024, with key sectors including jewelry, pharmaceuticals, and petrochemicals. However, India’s average tariff on imports was about 11% in 2023—roughly 8.2 percentage points higher than the tariffs imposed by the US on Indian goods. Looking ahead, if this comes into play, the Indian stock market may see further FII outflows, which has seen over ₹1.42 lakh crore so far in CY 2025.