India’s trade gap narrows to $14B in Feb as Europe’s petroleum demand dips 30%

India’s trade deficit dropped to $14.05 billion in February, the lowest in three years. A sharp 30% fall in petroleum exports to Europe and a 60% decline in gold imports drove this drop. The Commerce Ministry released these figures on Monday.

The steep fall in petroleum exports followed new U.S. sanctions on Russia’s oil trade. The restrictions, announced on January 10, targeted 183 oil tankers. India’s petroleum imports also declined by 26%, further impacting the trade balance.

Exports shrank by 10.8% to $36.9 billion in February, marking the fourth consecutive month of contraction. Imports fell even more sharply, dropping 16.3% to $50.96 billion—the lowest since April 2023. Non-petroleum and non-gems-and-jewelry exports also declined by 5%.

Commerce Secretary Sunil Barthwal acknowledged the challenging year but remained optimistic. “Despite difficulties, overall exports this year will exceed $800 billion,” he said.

ICRA’s Chief Economist Aditi Nayar pointed to a leap-month effect in year-on-year comparisons. She noted that February’s trade deficit was far lower than the $23 billion monthly average in FY25’s first ten months. She predicted a $5 billion current account surplus in Q4 FY25, about 0.5% of GDP.

Chemicals exports fell 24.5% to $2.2 billion, while gems and jewelry exports dropped 20.7% to $2.5 billion. Steel imports declined 23% due to ongoing restrictions on the sector.

Despite weak merchandise trade, India’s services exports showed strength. February’s services exports rose 23% to $35 billion, while imports increased 8.6% to $16.5 billion. From April to February, services exports grew 14% year-on-year to $354.9 billion, with imports rising 13.3% to $183.2 billion.

The global trade environment remains uncertain. Pankaj Chadha, chairman of the Engineering Exports Promotion Council (EEPC), warned about U.S. trade policies. “The U.S. shift toward protectionism is driving a global trade slowdown. More tariff hikes could worsen the situation. India, however, has held up well despite challenges,” he said.

Ashwani Kumar, president of the Federation of Indian Export Organizations (FIEO), blamed the export dip on weak global demand and tariff wars. However, he saw hope in the falling trade deficit. “This decline signals a trade rebalancing. Lower imports reduce reliance on foreign goods, creating opportunities for domestic industries,” he said.

While India faces global trade headwinds, its services sector and lower imports offer resilience. Experts expect further shifts as global tariff policies evolve.