India's trade deficit reached a staggering record high of $37.84 billion in November 2024, driven primarily by unprecedented gold imports amid falling merchandise exports, according to data released by the commerce department.
Merchandise imports surged by 27% year-on-year, climbing to nearly $70 billion, with gold imports alone accounting for $14.8 billion during the month—an all-time high. This marks a drastic increase from $3.44 billion recorded the previous year. Meanwhile, exports contracted by 4.85%, plummeting to $32.11 billion, highlighting significant economic shifts.
Commerce Secretary Sunil Barthwal pointed out the paradoxical growth within exports, noting, “This Christmas demand for exports is growing, which means demand for (non-petroleum) Indian products is consistently rising.” This statement underpins the contrasting narratives within the Indian trade ecosystem.
November's figures represent the culmination of varying factors, including increased global demand for gold, perceived as the go-to safe asset by investors, and influenced by significant festive and marriage-related demand as investors sought refuge from volatile market conditions. Additional Secretary L Satya Srinivas remarked on the year-to-date performance of gold, emphasizing, “Gold has been reflected as one of the best performing assets... Higher import is also due to the investor confidence.”
Conversely, the decline of exports is aligning closely with fluctuated petroleum prices. Data revealed deep contractions, particularly with petroleum exports falling nearly 50% to just $3.7 billion. Another key player, gems and jewelry, also witnessed notable declines, decreasing by 26% to $2.06 billion. Notably, the export growth did not falter completely, with certain sectors showcasing resilience; engineering goods rose by 13.7%, electronic goods surged 54.7%, and readymade garments increased by 9.8%.
Aditi Nayar, Chief Economist at ICRA, warned, “The adverse trade deficit print for November 2024 will result in...a sharper-than-expected widening of India’s current account deficit (CAD) to 2.8% of GDP.” The previous estimations had projected CAD levels at around 2%, highlighting concerning economic trends as the inflationary environment continues to exert pressure on local consumers and businesses.
Export challenges have also been exacerbated by geopolitical tensions, especially those related to the Israel-Iran conflicts, which have led to significant logistical roadblocks for Indian export activities. Ashwani Kumar, President of the Federation of Indian Export Organisations (FIEO), noted, “The rising tensions between Israel and Iran has continuously led to logistical challenges...” This observation reflects broader issues impacting international trade routes and operational costs.
On the cumulative front, India’s export performance for the April-November period showed a slight increase of 2.2%, reaching $284.31 billion, whereas imports soared by 8.3% to $486.73 billion, portraying a deteriorative trade balance.
The rising trade deficit also inevitably raises concerns about the health of the Indian economy, particularly against the backdrop of slower GDP growth. The country reported only 5.4% growth for the September quarter, down from 8.1% the year prior, highlighting impending challenges for policymakers.
Interestingly, India also made strides on the technology front as smartphone exports hit record numbers, surpassing Rs 20,300 crore, led by notable figures such as Apple and Samsung. This sector is expected to burgeon through government incentives, augmenting the prospects of India’s electronics manufacturing capability.
While services exports are compellingly overshadowing merchandise exports, with notable increments leading to surpluses, the trade dynamics remain volatile. For November 2024, service exports boasted growth of 26.8% to $35.67 billion. Service imports, too, grew, resulting in a services surplus of $17.9 billion. This changing tide suggests potential avenues for mitigating the imbalance posed by merchandise sectors.
Despite consistent policy efforts aimed at boosting domestic production through various incentives, experts like Biswajeet Dhar have raised concerns about the increasing import intensity of Indian exports. He noted, “Exports have become very import-intensive,...initiatives to reduce dependency on China are not yet working,” underscoring the systemic issues threatening the ideal outcomes expected from reformative policies.
The data reveals stark contrasts within India's trading environment as both commodity prices and international demand shift. It paints a complex picture for the road ahead, one where recovery strategies must not only target export growth but also manage the pressures driving up import expenditures. Only time will reveal how effectively India's trade policies can adapt and address these diverse challenges.
