New Delhi: A quadrupling of gold imports to almost $15 billion pushed up India's overall imports in November while exports fell, widening trade deficit for the month to an all-time high.
Trade deficit, or the amount by which the value of imports exceeds exports, hit a record $37.84 billion, compared with $21.31 billion in November 2023. A Bloomberg economists’ poll had predicted a deficit of $23 billion.
Data released by the commerce ministry on Monday showed a 27% year-on-year (y-o-y) surge in merchandise imports, accompanied by a 4.9% y-o-y fall in exports in November. Meanwhile, services exports put up a smart show, with November surplus touching a record $18 billion.
The widening goods trade deficit comes at a time of slowing economic growth and urban consumption in India, persistent inflation, and a falling currency. The government, though, is hopeful of a rebound in trade.
The fact that gold prices actually fell month-on-month in November means the increase in import was due to higher volumes, Madhavi Arora, lead economist at Emkay Global Financial Services Ltd said.
Experts pointed out that two key factors that drove the widening of trade deficit—fall in export realization of finished petroleum products and a record spike in import of gold—are temporary.
“Gold imports accounted for about 21% of the total import bill in November, while there is a sharp year-on-year decline in the export realization of petroleum products in November," said Sachchidanand Shukla, chief economist at Larsen & Toubro Ltd. "These factors skewed the trade deficit figures, but going forward, these are expected to get normalized. We expect current account deficit to be at around 1.3-1.5% of GDP at the end of this fiscal, against the earlier estimate of about 1% of GDP. The silver lining in the latest trade figures is that increasing imports suggests, domestic demand is picking up gradually. The flip side of a widening trade deficit is further downward pressure on the domestic currency,” Shukla added.
India's gold imports reached a record high of $14.86 billion in November 2024, marking a fourfold increase compared to $3.44 billion in November 2023. Cumulatively, from April to November 2024, the country imported gold worth $49 billion, a significant 49% rise over the same period in the previous fiscal year, when imports stood at $32.93 billion. However, such high levels were probably driven by festive and marriage-related demand, and unlikely to stay at current levels in coming months.
Experts also said India’s exports have become very import-intensive, and it is increasing. “This means that, despite efforts to reduce import bills through PLI and other initiatives, the import of electronics and other items has risen significantly. While exports are performing well, imports are increasing even more in comparison. The government's strategy to build a strong manufacturing base to check our vulnerability in the external sector is still not yielding the desired results. The initiatives to reduce dependency on China and the PLI scheme are not yet working in favour of exports,” said Biswajeet Dhar, economist and Distinguished Professor at the Council for Social Development.
Imports in November shot up to $69.95 billion, compared to $55.06 billion in November 2023. And merchandise exports dropped to $32.11 billion in November, compared to $33.75 billion in November 2023.
A Bloomberg report said the record deficit could put pressure on India’s current account deficit and impact the value of the rupee.
The widening of the deficit comes at a time when economic growth has slowed down. GDP growth in the September quarter was 5.4%, slower than the 8.1% growth reported in the same quarter a year ago, and 6.7% in the June quarter of this fiscal.
In addition, policy makers also face the challenge of a slowdown in urban consumption driven by high inflation, as pointed out by the Reserve Bank of India (RBI) in its 6 December monetary policy.
Senior government officials sought to downplay the widening trade deficit, attributing it to fluctuations in the price of petroleum products, which experience sharp variations in the global market.
“While overall merchandise exports were dragged down by declining petroleum product prices, the non-petroleum segment is growing at a steady and encouraging pace,” commerce secretary Sunil Barthwal said after the release of the monthly trade data. “This growth is seen as a more accurate indicator of the country’s industrial progress, as petroleum prices are prone to significant fluctuations.”
India’s non-petroleum exports in November reached $28.40 billion, up from $26.36 billion in the same month last year, reflecting a 7.4% growth. This demonstrates a positive trend and indicates strong growth in the manufacturing sector, Barthwal said, adding that the government is confident of surpassing $800 billion in total exports (merchandise plus services) in FY25.
"Despite the unexpected surge in gold imports, we maintain that FY25E CAD/GDP is likely to track at 1.1% of GDP, as better-than-expected growth in net services exports will largely offset sharply higher gold imports," Arora of Emkay Financial said. "Additionally, while oil imports have risen by ~7% so far, Q4FY25 will see sharply lower imports as Brent prices will likely be ~8-10% lower on a YoY basis, implying FY25E oil imports growth of just ~1%. With healthy growth for both non-oil exports and imports, the goods trade deficit/GDP will see a mild increase to ~7.1%.
So far this fiscal (April-November 2024), total exports stood at $536.25 billion, compared to $498.33 billion in April-November 2023, a growth of 7.61%.
In this period, merchandise exports were driven by electronic goods (7.9% y-o-y growth), engineering goods (26.87%), rice (13.35%) drugs and pharmaceuticals (6.76%), and ready-made garments (15.21%). Major imports included crude oil (7.15% y-o-y growth), electronic goods (10.54%) and gold (49.02%).
India’s major export destinations during this period were the US, UAE, the Netherlands, the UK and Singapore. China, UAE, Russia, US, Saudi Arab and Iraq remained the top suppliers, reflecting the country’s dependence on oil imports.
To be sure, at $35.67 billion, services exports clocked higher numbers than merchandise exports in November. Services exports were $28.69 billion in November 2023. Services imports, too, increased to $17.68 billion in November from $13.4 billion in the same month last year.
The combined value of merchandise and services exports touched $67.79 billion in November compared to $62.58 billion in November 2023. The overall trade deficit, including both services and merchandise, rose to $19.84 billion in November 2024 from $5.3 billion in November 2023.
“Service export values surpassing merchandise exports in November 2024 should come as no surprise,” said Ajay Srivastava, founder of Global Trade Research Initiative (GTRI). “Higher services growth has been a consistent trend, now translating into higher export values.”
Srivastava pointed out that between FY2019 and FY2024, India’s merchandise exports grew at a compound annual growth rate (CAGR) of 5.8%, while services exports rose at a robust CAGR of 10.5%. At this rate, by FY2030, services exports are expected to reach $618.21 billion, surpassing merchandise exports projected at $613.04 billion.
“Other business services will likely replace IT as the leading service export sector by 2030. The government should develop a core policy to realise the growth potential of this sector,” said Srivastava. ‘Other business services’ include management consulting, legal services, architectural and engineering services, market research, etc.
India’s foreign trade has been affected by weak demand in major markets, geopolitical tensions and volatile commodity prices. Sluggish growth in key overseas markets has lowered demand for exports while rising global fuel costs have increased expenses.
“Increasing our competitiveness is key to addressing our trade deficit; we need deep reforms that reduce the regulatory burden on our industry and create true ease of doing business,” said Rahul Ahluwalia, founder and director of Foundation for Economic Development (FED), a policy advocacy organisation.
Ahluwalia added that raising tariff and non-tariff barriers may seem like answers, but such measures lead to uncompetitive industry and slow growth. “India’s own experience shows this—when we lowered trade barriers, we have grown the fastest, and when we raise them, we have slowed down,” he said.
The October 2024 update of the Word Trade Organization’s (WTO) ‘Global Trade Outlook and Statistics’ highlights a rebound in global merchandise trade, which grew by 2.3% year-on-year in the first half of 2024. This recovery follows a -1.1% contraction in 2023, caused by high inflation and rising interest rates. The WTO expects moderate expansion to continue through the remainder of 2024 and into 2025.
In terms of broader economic performance, world real GDP growth at market exchange rates is projected to remain steady at 2.7% in both 2024 and 2025, providing a stable backdrop for the trade recovery. This growth underscores a gradual improvement in economic conditions despite ongoing challenges, such as geopolitical risks and economic policy uncertainty.
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