India’s Trade Deficit Widened to $29.65 Billion in August

By Shivangi Acharya and Manoj Kumar
NEW DELHI (Reuters) – India’s merchandise trade deficit in August widened to a ten-month high of $29.65 billion after gold imports surged while exports fell, impacted by rising shipping costs and sluggish global demand.

Economists had expected a trade deficit of $23 billion in August, according to a Reuters poll. The deficit was $23.5 billion in the previous month.

Trade Secretary Sunil Barthwal stated, “Exports are facing huge challenges on current global circumstances,” highlighting the monthly trade data’s implications.

Rising shipping costs and a slowdown in China, along with recessionary trends in Europe and the U.S., are impacting exports. Outbound shipments from the world’s fifth-largest economy fell 9.3% year-on-year to $34.71 billion, for the second consecutive month, while imports increased by 3.3% to $64.36 billion.

Gold Imports Surge
Gold imports in August surged more than three times to $10.06 billion, compared to the previous month, partly due to increased domestic demand. This marks the highest value of gold imports since March 2021 when they reached $8.5 billion. The increase in gold imports has been encouraged by a cut in the import tariff from 15% to 6% in July’s budget, discouraging gold smuggling.

Services Exports
August’s services exports were estimated at $30.69 billion, and imports at $15.70 billion, compared to $28.71 billion and $15.09 billion respectively, a year ago.

India’s total goods and services exports for the fiscal year 2023/24 stood at nearly $776 billion while imports were nearly $855 billion.

Shipping Costs Rising
Exporters have noted that Indian goods exports are suffering due to the escalating US-China trade war and rising freight costs. Ajay Srivastava, founder of the Global Trade Research Initiative, stated that freight costs for shipping goods to Europe and the U.S. have more than doubled in the past year due to disruptions in the Red Sea.

The think-tank urged the government to strengthen domestic shipping lines and container production, pointing out that over 90% of India’s merchandise exports depend on global carriers like Maersk, MSC, and COSCO.

In a recent report, the World Bank encouraged the Indian government to reduce import tariffs and integrate into global value chains to boost exports, noting that India’s manufacturing firms have not fully capitalized on opportunities from China’s exit from these sectors.

Trade Secretary Barthwal remarked that the trade deficit is not a pressing issue for a growing economy like India, emphasizing strong consumption demand driven by the economy’s rapid growth relative to other countries.