Mint Primer: How India’s trade gap soared, and how it might hurt
Subscribe to enjoy similar stories. India’s gold imports jumped fourfold to nearly $15 billion in November, powering a 27% surge in goods imports. At the same time, exports fell 4.9%.
The result: A record trade deficit of $37.84 billion. Mint examines the implications. India’s imports in November soared to $69.95 billion, sharply up from $54.48 billion in November 2023.
Merchandise exports, on the other hand, declined to $32.11 billion from $33.90 billion in the same period. Prominent drivers of the trade deficit were higher gold imports and falling realizations from petroleum exports. Gold imports touched $14.86 billion, a fourfold increase from $3.44 billion in November 2023, driven by higher volumes, likely fuelled by festive and wedding season demand.
A sharp decline in the export realization of petroleum products added to the trade deficit. The decline in goods exports could suggest challenges in India’s manufacturing sector, particularly since exports are becoming increasingly imported components and raw materials. Production-linked incentives and the introduction of quality control orders to reduce import dependency are yet to show significant results.
Small enterprises making components are finding operations sustainable, given the higher logistics and production costs, and those components are being imported. This indicates the need for a stronger domestic manufacturing base to compete globally. Widening trade deficit puts pressure on the current account balance.
Rising imports have increased demand for dollars, weakening the local currency. The rupee has fallen sharply in November and December, compelling the RBI to intervene to contain volatility. If imports continue to rise, it will have a direct impact on
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