In August, India's Trade Deficit Soars to a 10-Month Peak of $24.16 Billion

16 Sep, 2023

In August, India's Trade Deficit Soars to a 10-Month Peak of $24.16 Billion

India's merchandise trade deficit reached a 10-month high of $24.16 billion in August, primarily driven by a surge in imports due to festive season demand within the country. When compared month-on-month, the trade deficit increased by nearly 17 percent, rising from July's $20.67 billion gap between goods imports and exports.

Imports in India hit an eight-month peak in August, with the country importing products worth $58.6 billion. However, on a year-on-year basis, imports were lower, down from $61.88 billion in August of the previous year.

Commerce Secretary Sunil Barthwal noted a substantial rise in gold imports, likely attributed to the festive season. Gold imports for August were reported at $4.9 billion, up from $3.5 billion in the same month the previous year.

While exports contracted by 6.8 percent year-on-year, they saw a significant increase to a three-month high of $34.48 billion in August. Barthwal expressed optimism, pointing out the shift from pessimism to optimism in recent months. He cited improving export order books and global trade prospects, as indicated by the World Trade Organization (WTO). Unless recessionary trends in the European Union worsen, the positive trend is expected to continue.

New Delhi holds an optimistic outlook for further export growth in the coming months, with confidence tied to the growth projections for the financial year 2024. Barthwal highlighted the growth outlook, stating that it was 1.7 percent for FY23 and 2.4 percent for FY24, which should translate to improved exports in the near future.

The decline in year-on-year exports can be attributed to a drop in petroleum prices, with commerce officials stating that nearly half of the decline in exports this year resulted from lower petroleum prices. Although export volumes of petroleum products increased by 6 percent, prices remained 27 percent lower than the previous year.

Gems and jewelry exports led the decline due to a slowdown in developed economies, with the sector experiencing a $4.4 billion drop in exports during the April-August period.

There were positive signals from the engineering goods sector, which saw growth of 7.73 percent, while electronic goods recorded a substantial increase of 26.29 percent. After eight consecutive months of year-on-year decline, engineering goods exports turned positive, with total shipments reaching $9.05 billion in August 2023, compared to $8.40 billion in August 2022. Given its significant 25 percent share in India's export basket, the sector's recovery raises hopes for an overall increase in exports as sectoral exports continue to rise.

Arun Kumar Garodia, Chairman of the Engineering Export Promotion Council of India, expressed optimism about a resurgence in engineering exports in the coming months. This optimism stems from improving global demand conditions and reduced geopolitical tensions, with the announcement of an economic corridor connecting India with Europe via the Middle East already boosting business sentiment.

In addition to engineering goods, other sectors, including ceramic goods, drugs and pharma, and agricultural exports, are performing well and contributing positively to India's trade landscape.