Exports slip into contraction in February; trade deficit widens despite lower gap from January: Crisil

India’s merchandise exports slipped into negative territory in February after remaining subdued for two months, declining 0.8% year-on-year to $36.6 billion, compared with a 0.6% growth in January. 

According to a report by Crisil, the contraction was driven by a sharp fall in petroleum product exports, which declined 40% year-on-year against an 8.7% rise in January. 

In contrast, export performance improved in other segments. Shipments of gems and jewellery rose 4.1% year-on-year, reversing a 23% decline in January while core exports grew 6.6% compared with 2% in the previous month. Notably, gems and jewellery exports recorded growth after two consecutive months of contraction. 

Imports surge, led by oil and core segments 

While exports weakened, imports surged 24.1% year-on-year to $63.7 billion in February, up from 19.9% growth in January. Oil imports accelerated, rising 9.1% compared with a marginal decline of 0.2% in the previous month, supported by higher crude prices. Brent crude prices climbed to $71.1 per barrel in February from $66.8 in January. 

Core imports also grew at a faster pace of 14% compared with 2.5% in January, indicating strengthening domestic demand. Growth in gems and jewellery imports moderated to 157% from 242.4%, though it remained elevated. 

Trade deficit widens year-on-year 

With imports outpacing exports, the merchandise trade deficit widened significantly to $27.1 billion in February from $14.4 billion a year ago. However, it narrowed from $34.7 billion recorded in January. 

During the April–February period, merchandise exports rose 1.8% year-on-year, while imports increased 8.6%. Core exports and imports grew 5.9% and 8.6%, respectively. 

Exports to US decline; China-bound shipments rise 

On a country-wise basis, exports to the US declined 12.9% year-on-year in February, while shipments to the rest of the world grew 2.5%. Within this, exports to China surged 32.4% year-on-year. 

Services surplus remains strong despite moderation 

Services exports growth moderated to 9.8% year-on-year to $38.2 billion in January from 13% in December. However, a decline in services imports helped maintain a robust services trade surplus of $21.5 billion, up from $18 billion a year earlier, though lower than $22.7 billion in December. 

Cumulatively, the overall trade deficit (goods and services) during April–January stood at $105.7 billion in FY26, compared with $93.5 billion in the corresponding period last year. 

In its base case, Crisil expects the current account deficit (CAD) to widen to 1.5% of GDP in FY27 from an estimated 0.8% in FY26, assuming some relief from US tariff relaxations and crude oil prices rising to $75–80 per barrel. 

A healthy services surplus is expected to keep the CAD manageable. However, risks remain tilted to the downside, particularly due to the ongoing conflict in the Middle East. Prolonged geopolitical tensions and subdued global growth could weigh on exports despite potential tariff relief while sustained high crude prices may push up imports, exerting pressure on the goods trade deficit.