India's Merchandise Trade Deficit Widening

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 due to a surge in gold imports, alongside a decline in exports attributed to rising shipping costs and sluggish global demand.

Economists had predicted a trade deficit of $23 billion for August, compared to $23.5 billion in the previous month.

Trade Secretary Sunil Barthwal remarked on the tough global circumstances impacting exports.

The rising shipping costs, a slowdown in China, and recessionary trends in Europe and the US are contributing factors.

Outbound shipments from India's economy fell 9.3% year-on-year for the second consecutive month to $34.71 billion, while imports rose by 3.3% to $64.36 billion.

August's gold imports surged more than three times to $10.06 billion compared to the previous month, primarily driven by increased domestic demand. This marked the highest value for gold imports since March 2021, when they reached $8.5 billion.

The increase in gold imports through official channels followed a reduction in the import tariff from 15% to 6%, aimed at curtailing smuggling.

Services exports in August were estimated at $30.69 billion, with imports at $15.70 billion, up from $28.71 billion and $15.09 billion, respectively, a year prior.

For the fiscal year 2023/24, India's total goods and services exports stood at nearly $776 billion, while imports were close to $855 billion.

Rising Shipping Costs

Exporters noted that Indian goods exports have been hit by the escalating US-China trade war, rising freight costs, and declining global commodity prices. According to Ajay Srivastava, founder of the think tank Global Trade Research Initiative, freight costs for Indian exporters shipping to Europe and the US have more than doubled in the past year due to disruptions in the Red Sea.

The think tank has urged the government to bolster domestic shipping lines and container production, as over 90% of India's merchandise exports rely on global carriers like Maersk, MSC, and COSCO.

A recent World Bank report advised the Indian government to reduce import tariffs and better integrate into global value chains to enhance exports, noting that Indian manufacturing firms have not capitalized on opportunities resulting from China's exit from these sectors.

Trade Secretary Barthwal stated that the trade deficit should not be a concern for an emerging economy like India, citing strong consumption demand and economic growth outpacing other countries.