Global trade disruptions and uncertainties over tariffs could act as a catalyst for significant reforms in India, according to a report by HSBC Research released on Tuesday. The report suggests that these challenges may lead India to implement key changes in its economic and trade policies, which could fuel growth in the medium term.
HSBC highlighted that potential US tariffs might already be prompting India to make reforms such as lowering import tariffs, encouraging regional foreign direct investment (FDI), speeding up trade agreements, and making the Indian rupee more flexible.
The report also pointed out that India doesn’t need to look far for successful examples. It mentioned that the country’s growth in services exports—ranging from basic services like call centers to more advanced services like professional services—shows how moving up the value chain can lead to success.
In terms of India’s trade balance, the report noted a significant improvement in February. India’s goods trade deficit sharply narrowed to $14.1 billion in February, down from $23 billion in January. This was the smallest trade deficit in over three years. The reduction in the deficit was attributed to a drop in imports of key items such as oil, gold, and other goods.
Overall, India’s trade balance turned positive in February, with a goods trade deficit of $14 billion being offset by a services trade surplus of $18.5 billion. The report also highlighted that the fall in global oil prices contributed to reducing oil import costs by $1.5 billion, while gold imports remained moderate after a sharp increase in the previous quarter.
Despite these positive shifts, the report also warned that global trade and tariff uncertainties might slow India’s GDP growth in the short term. However, if India manages to introduce deeper reforms, these challenges could drive long-term economic growth.
The report also noted that within exports, core goods showed weaker performance, particularly in investment goods, which was expected given the global uncertainties affecting foreign direct investment (FDI) and investment in 2025.
On the import side, all key categories—oil, gold, and core goods—saw a decline. As global oil prices fell, India’s oil import bill decreased by $1.5 billion. Meanwhile, gold imports stayed modest after a sharp rise in the fourth quarter of 2024.
The services trade surplus remained strong at $18.5 billion. Services exports have been steadily increasing by an average of 3% each month, reflecting the continued strength of India’s services sector.
