The rating agency Icra currently expects the merchandise trade deficit to widen to USD 273 to 276 billion in FY2025 from USD 244.9 billion in FY2024, based on the premise of stronger growth in domestic demand compared to external demand.
India’s merchandise exports are projected to rise by a tepid 1 to 3 per cent to USD 446 to 449 billion in FY2025 from USD 441.4 in FY2024, amid sluggish global demand.
Moreover, an escalation of the Red Sea crisis and its impact on shipping timelines and freight prices could impact India’s merchandise trade, which remains a key monitorable in the near term, according to the Icra.
Additionally, the rating agency foresees India’s merchandise imports to rise by a sharper 5 to 7 per cent to USD 721 to 724 billion in FY2025 from $686.3 billion seen in FY2024, partly owing to a healthy domestic demand.
Moreover, the surge seen in gold imports in August 2024 is unlikely to sustain over the coming months. Consequently, ICRA expects the monthly merchandise trade deficit figures to ease in Q3 FY2025.
Talking about the services trade surplus, the YoY expansion in India’s services exports (+10.2 per cent to USD 149.4 billion during April to August 2024) outpaced that in such imports (+9.1 per cent YoY to USD 81.1 billion) during April to August 2024. Consequently, the services trade surplus increased by 11.6 per cent to USD 68.3 billion during April to August 2024 from USD 61.2 billion in the year-ago period.
The YoY growth in the aggregate commercial services imports of the US and the UK remained healthy at 7.7 per cent in Q1FY2025 (+8.9 per cent in FY2024) as per the World Trade organisation (WTO) data. Continued growth in the same range in FY2025 would support a similar growth in India’s services exports.
Overall, Icra anticipates the exports of IT services to remain tepid in FY2025 amid expectations of a muted 4 to 6 per cent growth in revenues in Icra’s sample set of companies, similar to that seen in FY2024, owing to persistent uncertainty in the key markets of the US and Europe that together constitute 80 to 90 per cent of the industry’s revenue.
However, the export performance of non-IT services like global capability centres (GCCs) may continue to remain healthy in FY2025, as was the case in the previous fiscal. Overall, the rating agency estimates the services trade surplus to rise to USD 172 to 174 billion in FY2025 from USD 163 billion in FY2024.
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