India’s merchandise trade deficit widens to $2 9.65 billion in August

New Delhi: India's goods trade deficit widened to a 10-month high in August as imports, led by gold, increased and exports, especially of petroleum products, dropped from a year ago on damp global demand amid geopolitical challenges.

The merchandise trade deficit, the difference between the country's exports and imports, stood at $29.65 billion in August compared with $23.5 billion in July and $20.98 billion in June, according to Ministry of Commerce and Industry data released on Tuesday.

Economists polled by Reuters expected the trade deficit at about $23 billion in August.

Merchandise exports rose to $34.71 billion in August, up from $33.98 billion in July, led by engineering goods, chemicals and electronic items. The value of goods shipped overseas stood at $35.20 billion in June and $38.13 billion in May. In August 2023, merchandise exports were $38.28 billion.

Merchandise imports climbed to $64.36 billion in August from $57.48 billion in July as purchases of gold surged to over $10 billion. Imports exceeded the $56.18 billion recorded in June and $61.91 billion in May. In August 2023, merchandise imports stood at $62.30 billion.

“Crude oil and petroleum imports fell by 32.38% in August 2024, primarily due to decreased demand from Indian refineries amid lower orders from European markets," said Ajay Srivastava, founder of Global Trade Research Initiative, an economic think-tank.

Also Read: Exports of key commodities fall in April-July amid rising trade deficit

In April, the World Trade Organization predicted that global merchandise trade would recover in 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.

Commerce secretary Sunil Barthwal told reporters that Indian exports face huge challenges.

"Data shows the slowdown in China, the recessionary impact on economies like the US and the EU, and rising transport costs have been challenges to exports," Barthwal said. "Despite these issues, India’s exports are growing."

Global slowdown

India’s exports have also been affected 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 hit global trade.

Also Read: India’s export basket skews towards services, pulls down trade deficit

India's services exports rose to $30.69 billion in August, up from $28.43 billion in July. Services exports stood at $28.71 billion in August 2023.

Services imports stood at $15.7 billion in August, higher than $14.55 billion in July and $15.09 billion in August 2023.

Merchandise and service exports stood at $65.40 billion in August, higher than $62.42 billion in July, but less than $67 billion reported in August 2023.

Total imports of merchandise and services rose to $80.06 billion in August from $72.03 billion in July and $77.39 billion in August 2023.

The main drivers of merchandise exports in August included engineering goods, organic and inorganic chemicals, electronic goods, ready-made garments, and drugs and pharmaceuticals.

According to the official data, engineering goods exports increased by 4.36% annually to $9.44 billion in August. While organic and inorganic chemicals exports increased by 8.32% to $2.37 billion, electronic goods shipments rose by 7.85% to $2.33 billion.

Ready-made garments/textile exports increased by 11.88% to $1.27 billion, and drugs and pharmaceutical exports climbed 4.67% to $2.35 billion.

Gold imports increased more than threefold to $10.06 billion from $3.13 billion in July and $3.06 billion in June.

Also Read: India's trade deficit: A comprehensive strategy could boost exports

Experts said boosting exports would be challenging.

"We must prepare for challenging times ahead, particularly for high-volume, low-value goods like low-end engineering products, textiles, garments and other labour-intensive products as rising freight costs linked to longer shipping routes are likely to exacerbate the situation," said Srivastava.

During April-August, India's top export markets were the US, the UAE, the Netherlands, the UK, China, Singapore, Saudi Arabia, Bangladesh, Germany and Australia.

According to Manoranjan Sharma, chief economist at Infomerics Ratings, stepping up exports seems to be difficult because of heightened geopolitical dynamics, falling oil prices, and geo-economic fragmentation. However, he said the current account deficit at about 1% of GDP is well within manageable proportions and manifests improved external stability.

"Despite global headwinds and some month-to-month volatility, India’s exports are poised to breach $800 billion in FY25. Sustained efforts are required to diversify the export basket, move up the ladder in high-value items, innovation and productivity growth, and leverage global value chains," Sharma said.