In August 2024, India's trade gap touched a high of ten months with $29.65 billion, the second highest gap in merchandise trade. A plunge in exports and record imports caused this. Goods exports fell by 9.32 percent to $34.71 billion. Imports rose 3.3% to all-time high $64.36 billion. Of course, the doubling of gold imports at an unprecedented rate of $10.1 billion contributed mainly to this spiking.
Gold Imports Drive Record Highs
Gold imports blew out in August, for a variety of reasons. With the cut from 15% to 6%, combined with lower prices around the world, better import flows were assured. And with the festive-wedding season upon India, Indian jewellers may well have been restocking, which boosted that demand. Commerce Secretary Sunil Barthwal also felt the same way, saying that this spurt of gold imports was due to seasonal and economic reasons. He clarified that a trade deficit should not be a big challenge for an economy like India developing only if there were no foreign exchange issues.
Slowing Exports
While gold imports were rising, exports in total declined for India. Exports declined by 9.32% with sharp downfalls in gems and jewellery as well as the petroleum sector. The decline in gems and jewellery exports came to 23.1% at $2 billion or less. Another blow is that difficulties arise when sourcing rough diamonds, an essential input into this industry, due to international sanctions over the Russia-Ukraine affair from the G7 nations. Meanwhile, oil imports contracted by 32.4% to $11 billion, but the export of petroleum products declined even steeper down to 37.6% to under $6 billion. The prime reason for this decline was the lower global prices of oil because lower oil prices compressed the value of India's petroleum exports.
Economic Outlook
Some solace comes from positive trends in India's export performance, even as the country's trade deficit has widened. Exports outside the petroleum and gems and jewellery sectors have been resilient enough to pull through amidst the difficult economic environment across the world. Commerce Secretary Barry Bharatwala said that, despite volatility in the global economy, India is still a bright spot. The chief economist for ICRA, Aditi Nayar, says the unprecedented rise in trade deficit will lead to the current account deficit rising to a level between 1.5% and 2% of GDP for the quarter gone by. This is being seen as a matter of grave concern, but tracking of Indian government has reached all-time high and officials hold out hope that it may smoothen out the downturn with higher growth in the economy.
Inputs by Agencies
Image Source: Multiple Agencies
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