India’s trade trap deficits mount

India has been living with chronic trade deficits for nearly half a century. The last time the country recorded an overall annual trade surplus was in 1976–77—only the second time in its history, the first being in 1972–73. Since then, the red ink has flowed year after year. India has consistently imported far more than it has exported, with China leading the pack of deficit partners, followed by Russia, Saudi Arabia, the UAE, and Indonesia. The inability to build an export-oriented manufacturing base while allowing low-tech imports to flood the market has locked India into a cycle of rising deficits and shrinking competitiveness.
For decades, successive governments have offered the same explanation: petroleum imports. India is indeed 85–90 percent dependent on imported crude, and last year’s petroleum bill stood at around $180 billion. But the argument is misleading. Petroleum is only part of the problem. Once petroleum exports are netted out, the effective share of crude and products in the total import bill falls marginally around 10 to 14 percent. The real issue is the explosion of non-petroleum imports—ranging from electronics and chemicals to plastics, fertilizers, and even mundane household items like cotton swabs and kitchenware. These are products that India could manufacture at home, yet they are imported in bulk, often rebranded and sold at premium prices.
In 2024–25, India’s imports climbed to $720.24 billion from $678.21 billion a year earlier, while exports fell to $437.42 billion. This pushed the trade deficit to $282.83 billion, among the highest ever. Petroleum product exports, once a buffer, dropped 13.7% in value despite higher volumes, even as non-petroleum imports surged unchecked—highlighting policy lapses and frail domestic capacity.
The latest commerce ministry figures say India’s merchandise exports rose 6.7 percent year on year to $35.1 billion in August 2025, while imports fell 10 fell to $61.6 billion, narrowing the trade deficit to $26.5 billion from $35.6 billion a year earlier. It has to be a regular trend.
The overall figures reflect a deeper structural weakness. India’s manufacturing base remains shallow, fragmented, and dependent on imports for critical inputs. Consider electronics. India imported electronic goods worth over $80 billion in 2024, making it one of the largest items in the import basket. Most domestic electronics manufacturing remains limited to assembly, with high dependence on imported components like semiconductors, displays, and microchips. The same pattern holds true in chemicals, pharmaceuticals (especially active ingredients), and machinery/
FTAs rising & the contrast
India has signed 13 FTAs with partners including Japan, South Korea, Sri Lanka, ASEAN, Australia, Mauritius, UAE, and EFTA od dour countries, along with PTAs in 2004 like Mercosur with Latin American countries. But agreements with ASEAN, Japan, and South Korea delivered limited gains, with imports outpacing exports. It has to revive SAFTA not only for trade but for diplomatic purposes as well.
Contrast this with China. In the early 1950s, its economy was smaller than India’s, and it too ran trade deficits. But Beijing quickly shifted gears in the post-Mao era.
It adopted performance-driven policies: building infrastructure at lightning speed, boosting industrial capacity, creating jobs, and relentlessly pushing exports.
The result is a global manufacturing powerhouse that now runs surpluses year after year. In 2024, China exported goods worth $3.58 trillion, imported $2.59 trillion, and posted a record surplus of $992.2 billion.
From toys and textiles to power equipment and telecom gear, Chinese goods dominate Indian markets. The situation has become so unbalanced that many Indian companies depend on Chinese inputs to remain competitive—further entrenching the deficit.
India’s global export share remains 1.8 percent, ranking 17th worldwide. By comparison, China commands more than 14 percent of world exports. Even smaller economies like Vietnam and Malaysia now surpass India in certain segments. Vietnam, once devastated by war, has transformed itself into a manufacturing and export hub for electronics, textiles, and machinery. In 2023, its exports crossed $350 billion—nearly matching India’s despite a population fifteen times smaller.
The United States remains India’s largest export destination, absorbing a wide range of goods from pharmaceuticals and IT services to gems and textiles. But the ground is shifting. From August 2025, Washington has imposed 50 percent tariffs on a range of Indian goods.
In response, New Delhi has scrambled to put together a Rs 25,000-crore export support plan under its “Export Promotion Mission.” Spread over six years, the initiative promises cheaper credit, insurance support, and incentives for diversification into new markets beyond the US. Yet the scale of support pales in comparison to what competitors offer. Vietnam, for instance, has provided tax holidays, cheap land, and infrastructure support to exporters, while Mexico has leveraged its proximity to the US with trade agreements and logistics advantages.
In a hyper-competitive export market dominated by China and fast-emerging players such as Vietnam, Indonesia, Malaysia, and Mexico, India risks being squeezed from all sides.
To escape the trade trap, India must rethink its economic strategy on several fronts. First, it must curb non-essential imports through smart tariffs, quality controls, and domestic substitution.
There is no reason India should import billions worth of low-tech items that can be made locally. Second, it must build real capacity in high-value manufacturing—electronics, semiconductors (small beginning made), pharmaceuticals, and green technologies.
Third, India has to reduce overdependence on the US and EU. Fourth, it has to promote manufacturing by cutting costs on logistics, power, and smoothening regulatory systems.
Remittances not viable
Finally, India must recognize that remittances, IT services, and petroleum re-exports are no substitute for a strong goods export base. These revenue streams have cushioned the current account but cannot drive long-term prosperity.
The stakes are high. Chronic trade deficits are not just a number on a balance sheet; they represent lost jobs, lost industries, and lost opportunities.
Every billion dollars of imports that could have been made domestically is a leak in India’s prosperity pipeline.
Unless India breaks out of this cycle, it risks remaining a perennial net importer—its growth hobbled, its currency under pressure, and its economic sovereignty weakened.
In 1976–77, India briefly tasted the power of a trade surplus. Nearly fifty years later, that moment is still a dream.
If India is to reclaim it, the country needs more than slogans—it needs a decisive, sustained push for industrial strength and export dynamism. Otherwise, the trade trap will keep snapping shut, year after year.