India’s merchandise trade deficit widens to $23.5 billion in July

New Delhi: India's goods trade deficit widened in July compared with the previous month due to increasing imports and damp global demand amid geopolitical challenges.

The merchandise trade deficit, the difference between the country's exports and imports, stood at $23.5 billion in July, higher than the $20.98 billion deficit reported in the previous month.

Economists polled by Reuters had expected a trade deficit for July at around $21.35 billion.

Merchandise exports fell to $33.98 billion in July, from $35.20 billion in June and $38.13 billion in May. In July 2023, goods exports stood at $34.49 billion.

Meanwhile, merchandise imports stood at $57.48 billion in July, higher than the $56.18 billion recorded in June, though lower than the $61.91 billion reported in May. During July 2023, merchandise imports stood at $53.49 billion.

Interestingly, in April, the World Trade Organization (WTO)predicted a recovery in the global merchandise trade during 2024, following a downturn in 2023 due to high energy prices and inflation.

The WTO expects global merchandise trade volumes to increase by 2.6% (annually) in 2024 and 3.3% in 2025, the agency said in its Global Trade Outlook and Statistics report.

Also Read: India’s merchandise trade deficit narrows to $20.98 billion in June

Speaking to the reporters, commerce secretary Sunil Barthwal said exports were holding up despite a weak global trade environment, with increasing exports of Indian electronic goods, engineering goods, and drugs and pharmaceuticals.

"We are set to surpass our past figures by a good margin. Service exports are also performing well. As far as merchandise trade is concerned, there have been ups and downs, but up to July, there is positive growth," he said.

"There is a lower export of petroleum products due to higher domestic consumption. In July 2023, India exported petroleum products worth $6.7 billion, which decreased to $5.2 billion in July 2024. The import of crude petroleum rose from $11.8 billion in July 2023 to $13.8 billion in July 2024," he added.

Indian exports hit by slowdown in global growth

Indian exports have also been impacted by a slowdown in global growth. In addition, interest rate hikes due to persistent inflation, particularly in western economies, have slowed business, investment and trade.

Geopolitical challenges, such as the conflicts in West Asia, Ukraine and the Red Sea, have also hit global trade.

Meanwhile, India's services exports stood at $28.43 billion in July, higher than $26.22 billion recorded during the same month of the previous year, though lower than the $30.27 billion recorded during June.

Also Read: India’s May merchandise trade deficit widens to $23.8 billion, a seven-month high

Total services imports stood at $14.55 billion in July, higher than the $13.74 billion reported during July 2023 but lower than the $17.29 billion reported during June 2024.

Total exports, of both merchandise and services, stood at $62.42 billion in July, higher than the $60.71 billion reported during July 2023, though below the $65.47 billion reported during June 2024.

Total imports, including merchandise and services, stood at $72.03 billion in July, up from $67.23 billion in the year-ago period.During June, total imports, including merchandise and services, stood at $73.47 billion.

The main drivers of merchandise exports during July included engineering goods, electronic goods, drugs & pharmaceuticals, meat, dairy & poultry products and RMG (readymade garments) of all textiles.

According to official data, engineering goods exports rose 3.66% year-on-year to $9.04 billion in July.

Electronic goods exports rose 37.31% year-on-year to $2.81 billion, while drugs & pharmaceutical exports increased by 8.36% to $2.31 billion.

Meat, dairy and poultry exports rose 56.18% annually during July to $0.46 billion, and the export of RMG (textiles) rose 11.84% to $1.28 billion in the same period.

Meanwhile, gold imports stood at about $3.13 billion in July, compared with $3.06 billion in June.

India, the world's third-largest oil consumer, imported $13.8 billion of oil in July, compared with $15.05 billion in the previous month, according to government data.

"A widening in the oil and non-oil deficit expanded the merchandise trade deficit in July 2024 relative to July 2023. The higher oil importbill reflects higher volumes and global prices and a possible declinein discounts," said Aditi Nayar, ChiefEconomist and Head of Research and Outreach at ICRA Ltd.

"The value of gold imports has been rather steady at around $3-3.4 billion each month in April-July 2024. The lower duties after the Union Budget may raise the value of gold imports in the next few months," she added.

Rating agency ICRA expects the merchandisetrade deficit to be $13-15 billion in Q2, FY25.

During July, India's top export markets were the US, UAE, Netherlands, United Kingdom, China, Singapore, Saudi Arabia, Bangladesh, Germany and South Africa.

The top sources of imports during the month were China, Russia, UAE, USA, Iraq, Saudi Arabia, Indonesia, South Korea, Singapore and Japan.

Speaking on the recent events in Bangladesh, leading to the fall of the Sheikh Hasina government, Barthwal said India is closely monitoring the situation in the neighbourhood, though disruptions in the country have been largely addressed.

"We also believe there should be improvements in trade between India and Bangladesh. We feel we should make every effort to enhance trade relations, and we are actively working towards that," he added.

“Despite growing exports, the second successive month of decline in goods exports and three-quarter level of high goods trade deficit manifest that global demand is yet to pick up meaningfully because of tepid global growth and geo-economic fragmentation,” said Dr Manoranjan Sharma, chief economist at Infomerics Ratings.

“This process could negatively impact the macro-economy and the domestic currency and necessitates focused efforts to step up exports for both economic growth and structural transformation," Sharma added.