India’s trade deficit widens in August on spike in gold imports, weak exports

India’s merchandise trade deficit in August widened to a ten-month high of $29.65 billion after gold imports surged while exports fell, dragged down by climbing shipping costs and sluggish global demand.

Economists had expected the country’s August trade deficit to be $23 billion, according to a Reuters poll. The deficit stood at $23.5 billion in the previous month.

“Exports are facing huge challenges on current global circumstances,” Trade Secretary Sunil Barthwal told reporters, in regard to the monthly trade data.

Rising shipping costs and a slowdown in China coupled with recessionary trends in Europe and the US were also impacting exports, he said.

Outbound shipments from the world’s fifth-largest economy fell 9.3% year-on-year, for the second month in a row, to $34.71 billion last month, data showed, while imports increased by 3.3% to $64.36 billion.

Monthly gold imports in August surged more than three times to $10.06 billion compared to the previous month, partly due to an increase in domestic demand, a senior commerce ministry official said.

In value terms, August gold imports were the highest since March 2021, when they had touched $8.5 billion, according to Reuters calculations.

Gold imports through official channels have also gone up after a cut in the import tariff to 6% from 15% in the budget in July, discouraging gold smuggling, the official said.

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

India’s total goods and services exports for the fiscal year 2023/24, which ended in March, stood at nearly $776 billion while imports for the same period were nearly $855 billion.

RISING SHIPPING COSTS

Exporters said Indian goods exports have been impacted by the escalating US-China trade war and rising freight costs, besides a fall in global commodity prices.

“Freight costs for Indian exporters’ shipping goods to Europe and the U.S. have more than doubled in the past year, driven by disruptions in the Red Sea,” said Ajay Srivastava, founder of the Delhi-based think tank Global Trade Research Initiative.

The think-tank has urged the government to take steps to strengthen domestic shipping lines and container production, noting that over 90% of India’s merchandise exports were dependent on global carriers like Maersk, MSC and COSCO.

The World Bank, in a report earlier this month, urged the Indian government to reduce import tariffs and integrate into global value chains to boost exports, noting the country’s manufacturing firms had not fully seized opportunities from China’s exit from these sectors.

The trade secretary said the trade deficit was not a matter of concern for an emerging economy like India.

“There is a huge consumption demand coming from the economy, which is growing at double the rate of other countries,” Barthwal said.