Composition of imports and the trade deficit

Detail

Key terms

• Composition of imports: the list of goods a country buys from abroad, and what share of the total import bill each one takes. It shows what the economy is short of. For example, it shows whether India lacks food, machinery or energy.
• Balance of trade: the value of a country's exports minus the value of its imports in a given period.
• Favourable balance of trade: exports are worth more than imports. The country has a trade surplus.

• Unfavourable balance of trade: imports are worth more than exports. The country has a trade deficit. Class 10 NCERT uses this term.

• Merchandise trade: trade in physical goods, such as crude oil, gold and machines.

• Services trade: trade in services, such as software, IT-enabled services, transport and tourism.
• Remittances: money that Indians working abroad send home to their families.
• POL: petroleum, oil and lubricants.

How the import basket changed over time

Period	Main imports	Why
1950s–60s	Foodgrain, capital goods and machinery	Food production was low after Partition. New industries under the Five-Year Plans needed machines.
1970s	Foodgrain imports stopped	The Green Revolution (high-yielding seeds, irrigation and fertiliser in Punjab, Haryana and western Uttar Pradesh) raised wheat and rice output.
After the 1973 oil shock	Fertilisers and petroleum replaced food as the main imports	1973 oil shock: oil-exporting countries (OPEC) cut supply, and world crude prices rose about four times. India's oil bill shot up.
2021-22 (NCERT Table 8.4)	Fuel leads. Machinery's share has fallen.	Growing industry, transport and household energy use

• Why the petroleum bill keeps rising:
• Industrialisation: factories, power and freight transport use more fuel.
• Higher living standards: people own more vehicles, fly more and use more LPG.
• World price swings: India buys most of its crude oil abroad, so every rise in world prices pushes up the import bill directly.

Share of each group in imports (NCERT Table 8.4, 2021-22)

Commodity group	Share of total imports, 2021-22
Fuel (coal + POL)	31.6% (the largest)
Capital goods	10.1% (a falling share)
Food and allied products	4.4%
Fertilisers	2.3%

Largest single import items (NCERT Table 8.5, 2021-22)

Item	Value, 2021-22
Petroleum, crude and products (POL)	₹12.08 lakh crore
Non-ferrous metals (copper, aluminium and similar)	₹5 lakh crore
Chemicals	₹3.09 lakh crore
Pearls and precious stones	₹2.31 lakh crore
Edible oils	₹1.42 lakh crore
Fertilisers	₹1.06 lakh crore

• Gold and silver and electronic goods are other large items.
• Pearls and precious stones: India imports rough diamonds and cuts and polishes them, mainly in Surat (Gujarat) and Mumbai. It then re-exports them as gems and jewellery. Part of this import bill therefore earns money back through exports.

Edible oil imports

• India is the world's largest importer of edible oil.

Oil	Main supplier countries	Region
Palm oil	Indonesia, Malaysia	South-East Asia, near the equator (hot and wet all year, which suits oil palm)
Soybean oil	Argentina, Brazil	South America
Sunflower oil	Russia, Ukraine	Black Sea region

• Why India imports edible oil:
• Most oilseeds, such as groundnut, rapeseed-mustard, soybean and sesame, grow on rainfed drylands. These fields have no assured irrigation.
• Their yields are therefore low and change from year to year with the monsoon.

• A larger and richer population eats more oil, so demand grows faster than domestic output.

• How large the gap is:

• In 2023-24, India produced 12.18 million tonnes of edible oil and imported 15.66 million tonnes [3].
• About 56% of domestic demand was met by imports in 2023-24 [3].

• Import dependence fell from 63.2% (2015-16) to 56.25% (2023-24). Over the same period, self-sufficiency rose from 36.8% to 43.74% [3].

• Policy response: the National Mission on Edible Oils (NMEO)

• NMEO–Oil Palm (2021): this mission spreads oil palm farming. Oil palm gives far more oil per hectare than annual oilseed crops. The North-East and the Andaman and Nicobar Islands are focus areas.
• NMEO–Oilseeds (2024): this mission runs from 2024-25 to 2030-31 with an outlay of ₹10,103 crore. It aims to raise primary oilseed output from 39 million tonnes (2022-23) to 69.7 million tonnes by 2030-31, so that India becomes self-reliant in oilseeds [2].

Fertiliser raw materials and energy imports

• Potash: India has almost no workable potash deposits, so nearly all of it is imported.
• Phosphate: India has some rock phosphate (for example, in Rajasthan around Udaipur and in Madhya Pradesh), but it is not enough. Much phosphate and phosphoric acid is imported.
• Coking coal: steel plants need low-ash coal to make coke. Indian coal has a lot of ash, so coking coal comes mainly from Australia.
• LNG (liquefied natural gas): this is natural gas cooled into a liquid so it can travel by ship. It comes mainly from Qatar in the Persian Gulf and from other suppliers.

India's trade deficit

• What it is: India's merchandise imports have been worth more than its exports in every year shown in NCERT Table 8.1.
• Growth of the gap (NCERT): ₹1.26 lakh crore (2004-05) → ₹14.26 lakh crore (2021-22). NCERT Fig. 8.1 shows the export and import lines moving further apart over time.
• Main causes: crude oil, gold, electronics and coal.
• Latest official figures (merchandise trade):

Year	Merchandise exports	Merchandise imports	Merchandise trade deficit
2023-24	US$ 437.07 billion [4]	US$ 678.21 billion [4]	US$ 241.14 billion [4]
2024-25	US$ 437.42 billion [4]	US$ 720.24 billion [4]	US$ 283.50 billion (revised) [5]
2025-26	—	—	US$ 333.19 billion [5]

• In 2024-25, exports barely grew, but imports rose by about US$ 42 billion. The gap therefore widened [4].
• How the gap is partly covered:
• Services exports: India sells far more services than it buys. The services trade surplus was US$ 188.84 billion in 2024-25 and US$ 213.89 billion in 2025-26 [5]. This covered roughly two-thirds of the goods deficit in each year.
• Remittances from Indians abroad, mainly in the Gulf countries, the USA and the UK, add to the inflow.
• The full accounting is called the Balance of Payments (BoP). It records all money flows between India and the rest of the world and is covered in the economy subject.

Prelims Hooks

• Largest import group (NCERT Table 8.4, 2021-22): fuel (coal + POL) at 31.6%. Capital goods had 10.1%, food and allied products 4.4% and fertilisers 2.3%.
• Largest single import item (NCERT Table 8.5, 2021-22): POL (₹12.08 lakh crore), followed by non-ferrous metals (₹5 lakh crore) and chemicals (₹3.09 lakh crore).
• Order of events: foodgrain imports in the 1950s-60s → the Green Revolution ends foodgrain imports in the 1970s → the 1973 oil shock makes petroleum and fertiliser the main imports.
• Edible oil and its source countries: palm oil – Indonesia and Malaysia; soybean oil – Argentina and Brazil; sunflower oil – Russia and Ukraine. Trap: palm oil does not come mainly from Brazil or Russia.
• India is the world's largest importer of edible oil. About 56% of domestic demand was met by imports in 2023-24 [3].
• NMEO–Oilseeds: 2024-25 to 2030-31, ₹10,103 crore, target of 69.7 million tonnes of oilseeds by 2030-31 [2]. NMEO–Oil Palm: launched in 2021.
• Supplier pairs: coking coal – Australia; LNG – Qatar. Potash is almost fully imported.
• An unfavourable balance of trade means imports are worth more than exports (Class 10 NCERT). India's merchandise trade deficit was US$ 333.19 billion in 2025-26 [5].
• Trap: India runs a deficit in goods but a surplus in services (US$ 213.89 billion in 2025-26) [5].

Mains Points

• Energy is the root of the deficit (GS-III): fuel is about a third of the import bill (31.6% in 2021-22), so world oil prices drive the deficit, the rupee's value and inflation. Ways to reduce it include more domestic oil and gas exploration, ethanol blending, renewable energy, electric mobility and strategic petroleum reserves.
• Edible oil imports show a geography problem (GS-I/III):
• Oilseeds grow on rainfed, low-yield drylands in Rajasthan, Gujarat, Madhya Pradesh and the Deccan.
• This keeps import dependence at about 56% (2023-24) [3].

• NMEO–Oil Palm (2021) and NMEO–Oilseeds (2024) aim to fix this through better seeds, more oilseed area and oil palm in the North-East [2].

• The changing import basket shows how India developed: India once imported food (the 1950s-60s) and now imports energy, metals and electronics. This reflects food self-sufficiency after the Green Revolution and a growing industrial and consumer economy. The heavy electronics bill also gives the reason for schemes that support manufacturing inside India.

• Goods deficit, services surplus: the merchandise trade deficit rose from US$ 241.14 billion (2023-24) to US$ 333.19 billion (2025-26) [4][5]. A large services surplus and remittances keep the overall external position manageable. This shows that India's comparative advantage (what it produces most efficiently compared with others) lies in skilled services rather than raw materials.