India’s Merchandise Trade Deficit: Charting Pathways To Surplus Through Data-Driven Analysis

Development

September 9, 2025

Executive overview

India’s overall exports (goods + services) hit an all-time high of US$820.9 bn in FY2024-25, while total imports were US$915.2 bn. Within that, merchandise exports were US$437.4 bn and merchandise imports US$720.2 bn, implying a goods deficit of ~US$282.8 bn (services produced a large surplus that narrowed the overall gap). Commerce Ministry’s quick estimates confirm that merchandise exports were broadly flat YoY while imports rose, keeping the goods gap wide. Press Information Bureau

Commerce Minister Piyush Goyal has argued the export engine remains resilient—“India’s overall exports touched an all-time high of US$825 bn in 2024-25” and could cross US$900 bn in FY2025-26, despite headwinds. The Economic Times ,The Times of India Prime Minister Narendra Modi has framed the long-run fix: “Bharat will become an industrial manufacturing hub and the world will look up to it,” tying export growth to Design in India, for the world. Press Information Bureau

Historical and socio-cultural context (why the gap is structural)

Colonial de-industrialization → import dependence. India exited 1947 with a narrow industrial base and heavy dependence on imported capital goods. Post-independence import-substitution built capacity in steel and heavy industry but did not create globally competitive electronics or energy self-reliance.
Liberalisation (1991→) raised exports—but imports rose faster. Services took off; goods deficits persisted, dominated by crude oil, electronics, and gold.
Socio-cultural drivers.
- Gold as savings & cultural asset → persistent high-value imports.
- Energy use & urbanisation → oil demand growth.
- Aspirational consumption of high-tech goods → electronics import bill.

What exactly India trades today (latest product-wise data)

Top merchandise exports (CY2024, HS-2, DGCI&S quick view)

HS-27 Mineral fuels (refined products): US$75.85 bn (-15% YoY)
HS-85 Electrical & electronic equipment: US$40.17 bn (+24%)
HS-84 Machinery/boilers: US$32.52 bn (+11%)
HS-71 Gems & jewellery: US$29.93 bn (-10%)
HS-30 Pharmaceuticals: US$23.37 bn (+10%)
Other notable lines: Vehicles (HS-87) US$22.11 bn; Apparel (HS-62, HS-61) US$8.20/7.52 bn. dgciskol.gov.in

Top merchandise imports (CY2024, HS-2)

HS-27 Crude & fuels: US$225.39 bn (31.4% of total)
HS-71 Precious stones/metals (incl. gold): US$90.50 bn (+25%)
HS-85 Electronics: US$85.22 bn (+12%)
HS-84 Machinery: US$61.85 bn (+8%)
Followed by organic chemicals, plastics, iron & steel, edible oils, fertilizers, copper, etc. dgciskol.gov.in

Implication: Three buckets drive the goods gap—crude, electronics, and gold/precious metals—with machinery & chemicals also sizeable.

Where the deficit sits (partners and composition)

Import origins (CY2024): China (US$109.4 bn), Russia (US$65.7 bn), UAE (US$61.0 bn) top the list—reflecting electronics/machinery (China), crude (Russia), and crude + bullion (UAE). dgciskol.gov.in
Export destinations include the US, UAE, and Netherlands; smartphones and pharma surged to the US. dgciskol.gov.in

What has shifted recently (and why it matters)

Electronics: from net importer toward scale exporter

PLI-driven smartphone exports crossed ₹2 lakh crore (~US$24 bn) in FY2024-25, making mobiles India’s leading single manufactured export line; iPhone exports alone reached ~US$12.8 bn in 2024. Moneycontrol ,The Times of India
Government reports show PLI exports across sectors at ₹5.31 lakh crore (~US$62 bn) cumulatively by Mar-2025; in large-scale electronics, cumulative exports reached ₹4.66 lakh crore by Jun-2025. Press Information Bureau

Caveat: As some early PLI tranches time out (e.g., one OEM’s FY26 Q1 drop after eligibility ended), sustaining momentum needs deeper component ecosystems (PCBAs, mechanics, camera modules, sub-assemblies). The Economic Times

Energy & edible oils: prices and composition

Crude remains the single largest import (CY2024: US$225.4 bn), keeping the deficit sensitive to oil cycles. dgciskol.gov.in
Edible oils: India remains the world’s top importer (~16 MMT a year; mix shifting toward soyoil/sunflower as palm premia rose). Reuters

FTAs & market access

India–UAE CEPA materially lifted non-oil trade; non-oil exports to UAE hit US$27.4 bn in FY2023-24 (avg annual growth 25.6% since CEPA). Arab News

Are policies narrowing the deficit? What the numbers say

1) Production-Linked Incentives (PLI)

Cumulative investment across PLIs crossed ₹1.61–1.76 lakh crore; exports under PLI > ₹5.3 lakh crore by Mar-2025; smartphones are the headline gainer (FY2024-25 exports ~US$24 bn). Press Information Bureau , Moneycontrol
Impact: Rising HS-85 exports (CY2024 +24% YoY to US$40.2 bn) start offsetting electronics imports (US$85.2 bn), but the component deficit remains. dgciskol.gov.in

2) RoDTEP & RoSCTL (export tax remission)

RoDTEP coverage: 10,642 tariff lines, FY2024-25 outlay ₹16,575 cr, extended and reinstated (June 1, 2025) for AA/EOU/SEZ shipments to strengthen competitiveness. Press Information Bureau ,The Economic Times
RoSCTL for apparel/made-ups extended to Mar-2026, supporting labour-intensive exports. Citi India

3) Logistics reforms (Gati Shakti + NLP 2022)

India’s Logistics Performance Index rank improved to 38 (2023); trade facilitation is part of the long-run export cost curve improvement. dgciskol.gov.in

4) Textiles: PM-MITRA

7 mega parks approved; government reports ₹18,500 cr investment intents and expectations of ₹10,000 cr per park and ~300,000 jobs each at maturity. Press Information Bureau ,The Tribune

5) Energy transition & import substitution

Renewables/hydrogen/biofuels policies are designed to shave the oil bill over time. (The oil line remains the critical swing variable in the deficit.) PM Modi has repeatedly linked Vocal for Local and Design in India to manufacturing-led exports and reduced import dependence. Press Information Bureau

Where the merchandise gap actually comes from (and how to fix it)

A. Crude oil & fuels (~US$225 bn imports in CY2024)

Fix:

Accelerate renewables capacity & ethanol blending
- scale green hydrogen/ammonia for industrial feedstocks and export niches.
- Continue strategic sourcing.
- Potential: A 20–25% oil-import reduction over a cycle could trim US$40–50 bn/yr from the deficit (order-of-magnitude). Evidence: oil still forms 31.4% of the import bill. dgciskol.gov.in

B. Electronics (HS-85: US$85.2 bn imports; US$40.2 bn exports)

Fix:

Move beyond phone assembly to deeper localisation: PCBAs, camera modules, displays, mechanics, connectors, passives; bring EMS + component clusters to PLI 2.0; align customs structure to favour components-to-modules value add.
Leverage the semiconductor programme so domestic OSAT/fab output can anchor higher local content over 3–5 years.
Potential: Halving the electronics import gap even as exports rise could save US$20–30 bn and push HS-85 into a net-positive contributor. dgciskol.gov.in

C. Gold & precious metals (HS-71: US$90.5 bn imports)

Why: Cultural/savings demand + jewellery value chains.
Fix:

Sovereign Gold Bonds/ETFs, duty-calibrations, and recycling; expand GMS (gold monetisation).
Potential: Cutting net bullion imports by US$10–15 bn/yr via financialisation + recycling is feasible; 2024 surge (+24.7% YoY) shows why this lever matters. dgciskol.gov.in

D. Capital goods & chemicals (HS-84/29/28)

Fix:

Targeted PLIs for capital goods (industrial machinery, machine tools), chemicals (APIs, specialty).
Stronger technology acquisition & standards to upgrade domestic supply to exporters (auto, pharma, electronics).
Potential: Persistent but slower-burning import substitution with positive spillovers to export competitiveness.

E. Edible oils

Reality: India will remain a large importer, though the mix is shifting (soyoil up; palm oil at a five-year low share in 2024/25). Push oil palm & oilseed yield, and scale refining/recycling to reduce the net dollar outflow. Reuters

What would get India to a goods surplus (not just a narrower deficit)?

A four-engine strategy with quantifiable targets (5–7 years):

Energy: Reduce net oil imports by US$40–50 bn via renewables, biofuels, green hydrogen pilots, and efficiency. dgciskol.gov.in
Electronics: Lift HS-85 exports > US$60–70 bn and cut the component-heavy import bill by US$20–30 bn through localisation + component PLIs; guard against post-PLI cliffs by deepening supply chains. dgciskol.gov.in ,The Economic Times
Gold: Financialise household gold + ramp recycling to save US$10–15 bn per year. dgciskol.gov.in
High-value exports: Push pharma, machinery, vehicles, defence, and processed foods with RoDTEP stability, faster FTAs (UAE CEPA already lifted non-oil exports to US$27.4 bn), and PM-MITRA execution. Arab News ,Press Information Bureau

Net effect: A realistic US$90–120 bn swing on the goods balance—enough to approach balance and, with a strong oil cycle + electronics momentum, achieve a modest merchandise surplus within one business cycle.

What leaders are saying (for your pull-quotes)

PM Narendra Modi (Independence Day, 2024): “Bharat will become an industrial manufacturing hub and the world will look up to it… We must embrace the call of ‘Design in India’ and move forward with the dream of ‘Design in India and Design for the World.’” Press Information Bureau
Piyush Goyal (June–July 2025): “India’s overall exports touched an all-time high of US$825 billion in 2024-25,” and could surpass US$900 billion in FY2025-26 despite global uncertainty. The Economic Times ,The Times of India

Appendix: more datapoints

FY2024-25 quick estimates: merchandise exports US$437.4 bn, imports US$720.2 bn; overall exports (goods+services) US$820.9 bn, overall imports US$915.2 bn. Press Information Bureau

DGCI&S (CY2024) composition:
- Exports: HS-27 US$75.85 bn, HS-85 US$40.17 bn, HS-84 US$32.52 bn, HS-71 US$29.93 bn, HS-30 US$23.37 bn. dgciskol.gov.in
- Imports: HS-27 US$225.39 bn, HS-71 US$90.50 bn, HS-85 US$85.22 bn, HS-84 US$61.85 bn. dgciskol.gov.in
RoDTEP details: 10,642 tariff lines, ₹16,575 cr FY2024-25 budget; reinstated for AA/EOU/SEZ shipments from June 1, 2025. Press Information Bureau ,The Economic Times
RoSCTL: apparel/made-ups remission extended to March 2026. Citi India
CEPA (UAE) impact: non-oil exports US$27.4 bn in FY2023-24; non-oil trade US$65 bn in 2024. Arab News
PLI outcomes (electronics): cumulative exports ₹4.66 lakh cr (LSEM) by Jun-2025; smartphone exports ~US$24 bn in FY2024-25. Press Information Bureau ,Moneycontrol

Conclusion

India’s merchandise deficit is the product of what we import (oil, electronics, gold) and how we produce (limited deep manufacturing in key chains). The problem is historical, with colonial roots to license raj and socialist mentality. The fix will not be quick; it is the execution agenda already in motion, energy substitution, electronics localisation, gold financialisation, and high-value export growth backed by RoDTEP/RoSCTL, PLI, Gati Shakti/NLP, and targeted FTAs.

Deliver those four engines concurrently and India won’t just cut the deficit. It crosses into a durable merchandise surplus while locking in macro-stability, a stronger rupee, and true strategic autonomy.

Parasuram Thampi