Trade deficit at a record $38bn as gold imports rise

India's trade deficit hit a record $37.84 billion in November, driven by gold imports and declining exports, pressuring the rupee further.

India’s merchandise trade deficit widened to a record $37.84 billion in November, driven primarily by surging gold imports and falling exports, a trend experts said threatens to add pressure on the rupee which is already strained by three months of portfolio outflows.

Imports, however, surged by 27% to $69.95 billion compared to $55.06 billion in November 2023, mainly due to record gold imports. (Hindustan Times)

Trade deficit in October stood at $27.1 billion and experts polled by news agencies Reuters and Bloomberg had estimated November’s figure to be around $23 billion. The rupee closed at a record low on Monday, falling 0.1% to 84.8712 per dollar

Overall, the data released on Monday showed, goods exports in November declined 4.85% to $32.11 billion from $33.75 billion a year ago. Imports, however, surged by 27% to $69.95 billion compared to $55.06 billion in November 2023, mainly due to record gold imports.

Gold imports jumped a staggering 332% to $14.86 billion in November 2024 compared to $3.44 billion in the same period last year. This surge came despite a 26.26% fall in gems and jewellery exports to $2.06 billion, suggesting gold imports were mainly for domestic consumption rather than value addition for exports, according to an expert who requested anonymity.

Petroleum product exports contracted sharply by 49.7% to $3.72 billion in November 2024, on account of softening international oil prices, though India’s petroleum exports grew in quantitative terms.

Exports to major partners showed a drop as well. Exports to China fell year-on-year by 15.47% to $1.17 billion in November 2024, while Chinese goods import jumped 9.89% to $8.79 billion in the same period.

Shipments to the US contracted by 2.58% to $5.7 billion, while exports to Bangladesh declined by 10.3% to $872 million, possibly due to recent political developments in that country.

Commerce secretary Sunil Barthwal downplayed concerns about the trade deficit, noting that non-petroleum exports grew 7.8% to $28.4 billion despite global headwinds. “Merchandise exports have taken a hit mainly due to a fall in global crude prices,” he said, adding that many imports facilitate value-addition domestically for exports.

PwC India partner and leader, economic advisory, Ranen Banerjee said: “The exports have grown sluggishly and imports have grown at a faster rate with some exchange rate impact also getting built into the same. The timing of the widening deficit puts additional pressure on the rupee as it has been under pressure from the portfolio outflows over the last three months. It could also lead to some uptick in imported inflation given we have to shell out more rupees from the same good being imported.”

Banerjee added that softening commodity prices, including crude and possible softening of gold prices with US yields rising, could provide some cushion going forward, as India’s oil and gold import bills are high. This could offset pressure on the current account deficit to some extent.

Aditi Nayar, chief economist and head, research outreach, at ICRA Ltd, attributed the high gold imports to festive and marriage-related demand, suggesting these levels were unlikely to sustain in coming months, which would help moderate future trade deficit figures.

Barthwal expressed confidence about closing this financial year with record overall exports (both merchandise and services combined) exceeding $800 billion. The commerce ministry has developed an aggressive strategy focusing on 20 countries with high export potential. The ministry plans to hold “a retreat” with heads of Indian commercial missions from these countries to develop an export strategy.

Additionally, the government is targeting six specific goods sectors and six services sectors identified for their higher export potential. This strategic focus comes after India achieved record exports of $776.68 billion in FY24 despite global headwinds.

The cumulative performance for the current financial year shows promising trends. India’s merchandise exports in the first eight months (April-November 2024) reached $284.31 billion, compared to $278.26 billion during April-November 2023, marking a 2.17% increase.

The combined exports of goods and services in April-November 2024 are estimated at $536.25 billion, up from $498.33 billion in the same period last year, representing a growth of 7.61%.