Trade deficit balloons to record high of $31.46 billion in October

The trade deficit widened to $31.46 billion last month, with imports at $65.03 billion and exports at $33.57 billion, according to data from the ministry of commerce and industry. This was higher than the expected figure from a Reuters poll, in which economists predicted a deficit of $20.50 billion.

During October 2022 the trade deficit stood at $26.31 billion, with imports standing at $57.91 billion and exports at $31.60 billion. During September 2023, merchandise exports were $34.47 billion, while imports stood at $53.84 billion.

Indian exports have been affected by a slowdown in global growth, especially in the advanced economies of the West. These countries are also seeing tightening of interest rates due to nagging inflation, leading to a slowdown in business and trade. Meanwhile, conflicts in Ukraine and Israel have push oil prices higher, leading to greater inflationary pressures.

According to a commerce ministry official, gold imports rose by 95% on an annual basis during October, which led to the ballooning of the trade deficit. In October gold imports totalled $7.23 billion, according to Reuters.

The huge rise in gold imports during October was due to the Diwali festival in November. Diwali was celebrated in October last year, and there difference in dates accounted for the huge jump in gold imports in 2023, commerce secretary Sunil Barthwal said at a press briefing following the release of the trade data.

“We are seeing that green shoots are stabilising. This is happening despite a fall in commodity prices,” Barthwal said. “If green shoots stabilise (further), it augurs well for our exports,” he added.

Brent crude prices rose substantially during October from the same period last year. The price stood at $92.63 a barrel during on 3 October, 2023, up from $ 89 on 3 October, 2022. Meanwhile, the Indian rupee fell by about 2.47% against the US dollar over the same period.

During October, services exports stood at $28.70 billion, while imports were $14.32 billion, compared to $29.37 billion worth of exports and $14.91 billion of imports in the previous month.

The higher-than-anticipated merchandise trade deficit was on account of higher spending on gold and oil, with exports broadly coming in on expected lines, experts said.

“Gold imports have risen by over 90%, which may push jewellery exports in the next few months but rising imports indicate that profiling of imports needs to be evaluated to find the impact of it on manufacturing and economy,” said Ajay Sahay, director general of the Federation of Indian Export Organisations.

The rupee is expected to remain under pressure with the trade deficit rising, while capital inflows, which have been dampening over the past two years, may also take time to pick up owing to higher interest rates, said Biswajit Dhar, professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University.

“If we keep piling on our trade deficit, the terms of borrowing will become tougher. Though going ahead the trade deficit outlook will depend on how we manage our manufacturing sectors. At present, the inability of the manufacturing sectors to find higher exports is a cause of concern. We have to find ways to improve our exports,” Dhar added.

India’s top merchandise export destinations during April-October 2023 were the US, the UAE, Netherlands, China and the UK, while top import sources were China, Russia, the UAE, the US and Saudi Arabia, according to official data.

Meanwhile, a senior commerce ministry official said the UK, which is currently negotiating a free trade agreement with India, could be seeking duty cuts for its electric vehicles.

“The UK will be phase out ICE vehicles by 2035 and shift focus to electric vehicles. It will be looking for export markets as it exports 80% of what it manufacturers,” the official said, requesting anonymity.

At present, there is high engagement between India and the UK to iron out differences regarding the FTA, with the majority of chapters either closed or at an advanced stage of negotiations.

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Updated: 15 Nov 2023, 06:28 PM IST