India’s Trade Deficit Reaches 10-Month High at $29.65 Bn

Ira Singh
Khabar Khabaron Ki,19 Sep’24

India’s economy continues to demonstrate robust growth and resilience, yet the trade deficit surged to a 10-month high of $29.65 billion in August driven by sluggish global demand and geopolitical tensions, which caused exports to shrink by 9.3%.

Despite a strong economic outlook and expanding influence in global markets, the widening trade gap was fueled by decline in India’s merchandise exports to $34.71 billion in August from $38.28 billion a year ago, while imports were at are record high of $64.36 billion, up from $62.30 billion in August 2023,according to estimates.

This sharp increase in imports, driven significantly by a surge in domestic demand for gold which hit $10 billion, ahead of the festive season contributed to a significant widening of the trade gap from July’s $23.50 billion.

The significant contraction in exports, primarily in sectors like engineering goods, textiles, and chemicals, underscores the challenges posed by subdued global economic activity and persistent supply chain disruptions. Major export markets, including Europe and North America, continued to grapple with economic uncertainty, further impacting India’s overseas sales.On the import side, the spike in gold demand highlighted the ongoing appetite for the precious metal, particularly in the lead-up to major festivals and the wedding season. In addition to gold, oil imports remained elevated, contributing to the widening trade gap.

However,despite the expanding trade deficit, India’s economy remains on a stable footing, supported by strong domestic consumption and growth in non-petroleum sectors,noted analysts.

Besides, analysts also suggest that the increasing deficit adds to India’s external vulnerabilities, especially amid rising global uncertainties. With the Reserve Bank of India (RBI) focused on maintaining stable foreign exchange reserves, the sharp increase in the trade deficit could pose challenges to macroeconomic stability in the coming months.Efforts to diversify export markets and promote domestic manufacturing could help mitigate these pressures. However, the immediate outlook remains clouded by global economic headwinds and persistent geopolitical risks, which may continue to weigh on both export demand and import costs.

Commerce secretary Sunil Barthwal reportedly stated, a huge slowdown in China, falling petroleum prices, a recession in Europe and transportation and logistics-related challenges have affected merchandise exports. However, he said that the high trade deficit is not a cause of concern. “Trade deficit is not a matter of concern for emerging economies. China maintained larger trade deficit.There is a huge consumption demand coming from the economy, which is growing at double the rate of other countries,” Barthwal said, adding that as long as it doesn’t lead to a forex issue, it’s “normal”

Union Commerce and Industry Minister Piyush Goyal recently expressed confidence in India’s goods and services exports crossing $800 billion this fiscal despite global challenges.