India’s merchandise trade deficit expanded to a two-month high in October, driven by increased imports, according to data released by the commerce ministry on Thursday.
A year earlier, the deficit stood at $30.43 billion. Economists surveyed by Reuters had projected the October trade deficit at $22 billion.
India’s foreign trade has been affected by weak demand in major markets, geopolitical tensions and volatile commodity prices.| MSN
The goods trade deficit—the gap between exports and imports—reached $27.14 billion in October, up from $20.78 billion in September. In comparison, the deficit was $29.65 billion in August, $23.5 billion in July, $20.98 billion in June, $23.78 billion in May, and $19.1 billion in April.
Merchandise exports rose to $39.2 billion in October, up from $34.58 billion in September and $33.43 billion in October 2023. However, imports climbed even higher, hitting $66.34 billion compared to $55.36 billion in September and $63.86 billion in October 2023.
The growing deficit highlights ongoing challenges in achieving trade balance despite gradual improvements in export performance.
The service sector
Services exports increased to $34.02 billion in October, up from $30.61 billion in September and $28.05 billion in the same month last year. In preceding months, they were $30.69 billion in August, $28.43 billion in July, $30.27 billion in June, $30.16 billion in May, and $29.57 billion in April.
Similarly, services imports rose to $17 billion in October, compared to $16.32 billion in September and $13.46 billion a year earlier. August saw imports at $15.7 billion, followed by $14.55 billion in July, $17.29 billion in June, $17.28 billion in May, and $16.97 billion in April.
The total value of merchandise and services exports reached $73.21 billion in October, up from $65.19 billion in September and $61.48 billion in October of the previous year. Meanwhile, the overall trade deficit, encompassing both services and merchandise, narrowed to $10.12 billion in October, down from $15.85 billion in the same period last year.
Worldwide challenges
India's foreign trade has been impacted by subdued demand in key markets, geopolitical tensions, and fluctuating commodity prices. Slower growth in important export destinations has reduced demand, while rising global fuel prices have led to higher costs.
In April, the World Trade Organization (WTO) projected a rebound in global merchandise trade for 2024, following a challenging 2023 characterized by inflation and elevated energy prices. The WTO anticipates trade volumes will increase by 2.6% in 2024 and 3.3% in 2025, although geopolitical risks continue to pose challenges.
Drivers of India's exports
During the April-October period, key drivers of merchandise exports included engineering goods, petroleum products, electronics, pharmaceuticals, chemicals, and ready-made garments. Meanwhile, major imports consisted of crude oil, petroleum products, electronic goods, and gold.
India’s primary export markets during this time were the US, UAE, Netherlands, UK, and Singapore. The top suppliers to India were China, Russia, the UAE, US, and Iraq, underscoring the country's reliance on oil imports.
"The merchandise trade data for October 2024 displayed divergent trends, with a sharp rise in the trade deficit in sequential terms, amidst a size-able moderation relative to October 2023," stated Aditi Nayar, the chief economist and head of research and outreach at ICRA Ltd.
"One of the chief reasons underpinning the sequential rise in the trade deficit appears to be a jump in the volume of crude oil imports, as well as a festive season-led uptick in gold imports," she mentioned that the current account deficit is anticipated to reduce to 1.2% of GDP in the ongoing quarter (Q3, FY25), down from an estimated 1.8% of GDP in Q2 FY2025, and is expected to stabilize at around 1% of GDP for the entire year.
A current account deficit occurs when a country's imports surpass its exports.
According to Trade Secretary Sunil Barthwal, India’s total exports are projected to exceed $800 billion by the end of FY25, following the release of the most recent monthly trade data.
"Our export progress has been strong. Looking at the period from April to October, this has been the highest ever non-petroleum export performance from this country," he said.
"Our strategy of focusing on certain sectors and specific countries has yielded positive results. Additionally, our emphasis on improving manufacturing competitiveness is now showing tangible outcomes. Whether through industry policy, trade policy, or foreign policy, they are all delivering results," he added.
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