Gold tide lifts imports to record

Last Updated19/09/2024

August imports rose to an all-time high of $64.36 bn as inflows of gold doubled to a record $10.1 bn; with exports sliding 9.32%, the trade deficit widened to a 10-month high of $29.65 billion, the second-highest shortfall in merchandise trade

In August 2024, India witnessed a 9.32% decline in goods exports, reaching $34.71 billion, while imports rose by 3.3% to an all-time high of $64.36 billion, resulting in a trade deficit of $29.65 billion, the second-largest monthly trade gap on record.

Gold imports doubled to $10.1 billion, driven by factors such as:
- A reduction in import duty from 15% to 6%.
- A drop in global gold prices.
- Increased demand due to stocking up for the festive and wedding seasons.

Oil imports fell by 32.4% to $11 billion, reflecting lower global oil prices.
Petroleum product exports saw a sharper decline of 37.6%, dropping to $6 billion, due to a decrease in oil prices by six dollars per barrel.

Exports in this sector plummeted by 23.1%, reaching $2 billion, impacted by G7 sanctions linked to the Russia-Ukraine conflict, which complicated the procurement of rough diamonds.

Commerce Secretary Sunil Barthwal downplayed concerns about the trade deficit, emphasizing that for a developing economy like India, such deficits should not be alarming as long as foreign exchange reserves are stable.
He highlighted that despite challenges in sectors like gems and jewellery and petroleum, India’s broader export performance remains robust.
Barthwal also noted the cyclical nature of gold imports, which peak around the festive and wedding seasons, and pointed to recent reductions in gold import duties as a catalyst for the rise in imports.

The merchandise trade deficit for August has raised concerns about India’s current account deficit. Aditi Nayar, Chief Economist at ICRA, estimated that this sharp rise in the trade gap could push the current account deficit to 1.5-2% of GDP in the current quarter.
While the surge in the trade deficit reflects temporary factors such as gold imports and lower oil prices, the global uncertainty and sanctions on key export sectors pose risks to India’s trade outlook in the near term.