India's merchandise trade deficit narrowed sharply to $21.88 billion in May, aided by a slowdown in imports along with seasonal improvement in exports, government data released on Monday showed.

The trade deficit was lower than the $25 billion expected by economists in a Reuters poll, and below April's deficit of $26.42 billion.

"Moderation in imports, led mainly by oil and gold, and improvement in exports, which was partly seasonal, helped reduce the trade deficit in May 2025," said Garima Kapoor, economist and executive vice president at Elara Securities.

"The recent spike in oil prices and global trade uncertainties, including potential U.S. tariff hikes post the 90-day pause ending in July, remain key headwinds to watch out for in the near term," she added.

India's goods exports stood at $38.73 billion in May while imports were $60.61 billion, compared with $38.49 billion of exports and $64.91 billion of imports in April.

Meanwhile, the trade in services showed an estimated surplus of $14.65 billion in May, as services exports rose to an estimated $32.39 billion while imports increased to $17.14 billion, data showed.

"Despite the global policy uncertainty regarding trade, we have done extremely well," Trade Secretary Sunil Barthwal told reporters, adding that the fall in global crude oil prices had a dampening impact on exports.

India's crude oil imports fell to $14.7 billion in May against $20.72 billion in April. Gold imports fell to $2.5 billion in May from $3.1 billion in the previous month.

Among product categories, exports of electronic goods, including mobile phones, saw the sharpest year-on-year jump of 47% in May, while shipments of chemicals rose by 16% and those of pharmaceuticals grew by 7%, CMIE data showed.

India's exports to the United States expanded in April-May to $17.25 billion, up from $14.17 billion a year earlier, suggesting that the U.S. tariff hikes averaging 10% in early April had a limited impact.

U.S. President Donald Trump's flip-flops on sweeping import tariffs - along with uncertainty over the 90-day pause on reciprocal duties for major global trading partners, including a 26% tariff for India until July 9 - have unnerved exporters, prompting many to front-load shipments.

India and U.S. bilateral trade deal talks are progressing and are likely to meet the timeline set for signing a deal by fall 2025, a trade ministry official said, adding that both countries would need to expand market access and reduce tariffs to boost trade.