Merchandise trade deficit soars in October as US tariffs bite and gold imports surge

India's goods trade deficit ballooned to an all-time high in October, driven by a surge in gold imports and the growing impact of punitive US tariffs.

The trade gap widened sharply to $41.68 billion last month, jumping from $32.15 billion in September and $26.2 billion a year earlier, provisional data released by the commerce ministry showed. The reading significantly exceeded expectations, coming in far wider than the $28.8 billion deficit projected by a Reuters poll.

Gold was the villain of the piece: Imports tripled to $14.7 billion in October from $4.9 billion a year earlier. Gold has gained 64% in just a year, driven by global economic uncertainty, geopolitical tensions, and robust central bank buying.

“The increase in gold imports has been phenomenal despite very high global prices,” commerce secretary Rajesh Agarwal told reporters, noting this was one of two primary drivers behind the widening deficit.

The other culprit was stiff US tariffs of 50% on a range of Indian goods, which hit demand in the country's biggest export market. Exports to the US stood at $6.3 billion, up from the previous month's $5.8 billion, but lower than the previous year's $6.9 billion. Commerce secretary Agarwal termed the month-on-month increase in exports to US a "silver lining."

Overall merchandise exports slipped to $34.38 billion from $36.38 billion in September and $38.98 billion a year earlier. Agarwal said India maintained steady export growth in the first seven months of FY25, even as global demand softened.

Meanwhile, imports picked up. Goods imports rose to $76.06 billion, up from $68.53 billion in September and $65.21 billion a year earlier. The result: A hefty trade deficit, which threatens to erode forex reserves, weaken the rupee, and raise inflationary pressure.

Gold, silver

Jewellers reported strong festive buying and aggressive restocking ahead of Dhanteras and Diwali. Cumulative gold imports during April-October 2025 rose 21.4% in value terms from the same period last year, even as volumes remained below 2024 levels.

“The exponential rise in gold imports despite a fall in consumer demand suggests that buyers have been stocking the precious metal in anticipation of further price increases, hoping to secure significant gains late,” said Surendra Mehta, national secretary at India Bullion and Jewellers Association Ltd (IBJA).

Silver too joined the price race in precious metals. Imports rose 138% annually to $5.9 billion during April-October. In the April-September period, silver imports rose to $3.22 billion, up from $2.06 billion in the year-ago period.

Unlike gold, silver import volumes have jumped, driven by its growing use in solar panels, electronics manufacturing, electric vehicles and pharmaceuticals. Silver imports rose from 2,290.26 tonnes in April-September 2024 to 2,820.73 tonnes in the same period this year, reflecting a combination of higher prices and stronger industrial offtake.

“An uninterrupted rise in gold prices ahead of the festive season may have led to speculative demand, which may not sustain going ahead, possibly leading to some cooling in the import numbers in the ensuing months,” said Aditi Nayar, chief economist, Icra Ltd. “Nevertheless, the non-oil non-gold imports rose by a substantial 12.4% y-o-y, led by fertilizers, machinery, electronic goods, non-ferrous metals, and silver,” she added.

Notably, the surge in gold imports came alongside tighter regulations for importing the metal.

The Directorate General of Foreign Trade (DGFT) has revamped the allocation of tariff rate quotas (TRQs) under the India-UAE trade pact, limiting the import of gold.

Export compliance norms for jewellery makers were also strengthened to close procedural loopholes, even as speculative buying and festive-season demand nearly doubled gold imports in September compared with August.

To be sure, the surge in precious metals imports comes amid a broader slowdown in export growth, with the US tariffs expected to impact labour-intensive sectors such as garments, leather, gems, and jewellery. Shipments to the US account for roughly 2% of India’s GDP.

US tariffs

In August, US president Donald Trump announced an additional 25% tariff on Indian goods, reportedly linked to New Delhi’s oil purchases from Russia, bringing total levies on Indian exports to 50%. The measure took effect on 27 August. The tariffs are expected to adversely impact India’s exports to the US, particularly from labour-intensive sectors such as garments, leather, gems, and jewellery. Shipments to the US account for roughly 2% of India’s GDP.

The tariffs have dealt a clear blow to India’s export performance, underscoring the urgency of speeding up trade negotiations with Washington, still the world’s most influential market, said Rahul Ahluwalia, founder-director of the Foundation for Economic Development. “Strengthening our trade relationship with the US will not only help offset the current losses but also create a more resilient export ecosystem capable of weathering global economic shifts,” he said. “Our analysis further indicates that the European Union stands as the only other major market with comparable potential for strategic engagement,” he added.

Meanwhile, services exports continued to strengthen in October, rising to $38.52 billion from $34.41 billion a year ago, and $30.82 billion in September.

Services imports also increased, climbing to $18.64 billion from $15.29 billion in September and $17.23 billion a year ago.

India’s combined goods and services exports rose to $72.89 billion in October, up from $67.20 billion in September, though marginally below the $73.39 billion recorded a year earlier. Combined imports also picked up, reaching $94.70 billion in October compared with $83.82 billion in September and $82.44 billion in the corresponding month last year.

Overall, petroleum and crude, electronics, gold, and machinery dominated India’s import basket during the month, while engineering goods, petroleum products, electronic goods, and drugs and pharmaceuticals led the export portfolio.

China, the UAE, Russia, the US, and Saudi Arabia remained India’s top suppliers, even as the US, UAE, the Netherlands, China, the UK, and Germany continued to be the country’s key export destinations.

“In gold, the import bill has gone up mainly because unit prices have risen sharply, even though the actual import volumes are lower than during the April–October period of the last fiscal year. The value spike is therefore more a price effect than a volume surge,” said Vipul Shah, former chairman of the Gems and Jewellery Export Promotion Council. “Silver imports have risen exponentially in both value and quantity as a large section of investors shifted towards silver, looking for a more affordable alternative amid the continued rise in gold prices and high market volatility,” said Shah.

Import surge

“The massive surge in gold imports, both in volume and value terms, has been straining India’s import bill, and the festive-led jump—nearly three to four times the FY25 monthly average—worsened trade imbalances in October. With no respite from the price spike, import pressure is likely to persist, even though the festive-driven volume effect may ease,” said Madhavi Arora, chief economist at Emkay Global Financial Services.

India’s gold import pattern shows a sharp escalation in FY2026 compared with the previous three years. While monthly imports in FY2023 and

FY2024 largely stayed in the $1–6 billion range, and FY2025 saw occasional spikes driven by festival and wedding-season demand, FY2026 has opened with consistently higher values across several months.

In FY2023, imports were relatively moderate, with most months hovering between $1.1 billion and $3.8 billion, peaking at $6.03 billion in May. FY2024 saw some strengthening due to price movements, with imports touching $7.23 billion in October and $6.15 billion in February, but still well below the extremes seen in the years that followed.

FY2025 marked the beginning of unusually large surges, especially in the run-up to the festival season. Imports jumped to $12.55 billion in August, $9.84 billion in November, and remained elevated in several months between $3–5 billion, indicating both strong retail demand and a response to price volatility.

Against this backdrop, FY2026 stands out with the sharpest and most sustained rise. Imports reached $14.72 billion in October, the highest in the four-year period. September also surged to $9.62 billion, far exceeding levels from the same month in earlier years. Even the relatively lean months—April, May and June—recorded $3.10 billion, $2.55 billion and $1.84 billion respectively, higher than FY2023 levels and close to or above FY2024 averages. July and August, at $3.97 billion and $5.44 billion, reflect a continuation of the upward trend.