India’s trade deficit soared to a 10-month high of $29.7 billion in August, as exports experienced a significant contraction of 9.3% for the second consecutive month. The decline in shipments was primarily driven by a notable drop in exports to China, which fell by 22.4%, and a broader slowdown in global demand.
According to the latest data from the Ministry of Commerce, total exports amounted to $34.7 billion in August, influenced by several factors, including falling petroleum prices and challenges within the transportation and logistics sectors. The contraction in exports is exacerbated by economic slowdowns in key markets, such as China, Europe, and the United States.
Commerce Secretary Sunil Barthwal highlighted the current global challenges, stating, “In the current global situation, exports have been a huge challenge… there is a slowdown in China, and recession is persisting in Europe and the US. Transportation costs due to trade route diversions from the Suez Canal to the Cape of Good Hope remain an ongoing issue.”
On the import side, India saw a significant surge, with total imports rising by 15.5% to a record $64.4 billion, primarily due to a doubling of gold imports, which reached $10 billion in August. The increase in gold inflows can be attributed to several factors, including pre-festive season stocking, falling global prices, and a reduction in the import duty from 15% to 6% in July.
Notably, petroleum products, which account for over 17% of India’s total exports, experienced a sharp decline of 37.5%, totaling $5.95 billion. Additionally, gems and jewellery exports fell by 23% to $1.9 billion.
Aditi Nayar, Chief Economist at ICRA, expressed concern about the widening merchandise trade deficit, predicting that the current account deficit could rise to between 1.5% and 2% of GDP for the second quarter of FY25.
Despite the overall contraction in merchandise exports, non-petroleum and non-gems and jewellery exports—often seen as a more reliable indicator of export health—grew by 2.4% to $26.76 billion. Sectors that demonstrated resilience included engineering goods (up 4.36%), electronic goods (up 7.85%), drugs and pharmaceuticals (up 4.67%), and textiles (up 11.88%).
While gold dominated the import figures, other significant imports included coal (up 8.88%), electronic goods (up 12.78%), and non-ferrous metals (up 22%). Conversely, imports of petroleum and crude products saw a nearly 30% decline, amounting to $11 billion.
Barthwal indicated that the widening trade deficit should not be a major concern for emerging economies like India. Ashwani Kumar, President of the Federation of Indian Export Organisations (FIEO), noted that ongoing international trade disruptions and falling commodity prices have significantly impacted export values. He pointed out that many exporters have shifted focus to the domestic market due to rising international freight costs, suggesting that without these logistical challenges, export growth could have been achieved.
In contrast, services exports grew by 6.9% to $30.69 billion in August, while services imports increased by 4% to $15.7 billion, resulting in a surplus of $14.9 billion. However, it is important to note that the services trade data for August is considered an estimate and will be revised based on future reports from the Reserve Bank of India.
