India’s merchandise trade deficit grew to $23.5 billion in July, up from $21 billion the previous month, according to data released by the Ministry of Commerce on August 14. This widening deficit was driven by a 1.5% decline in merchandise exports and a 7.5% increase in imports.
In July, India exported goods worth $33.98 billion, while imports totaled $57.48 billion. Shreya Sodhani, a regional economist at Barclays, noted that the larger deficit was influenced by a sequential decrease in exports of 3.5%, reflecting a broader trend of weaker-than-expected export performance across emerging markets in Asia.
Exports had previously risen by 2.6% to $35.2 billion in June, while imports had increased by 5.1% to $56.8 billion.
Commerce Secretary Sunil Barthwal expressed optimism, highlighting efforts to boost exports to new markets, including Africa. He pointed out that despite the current situation, India’s exports have seen a 4% increase in the first four months of the year, reaching $144.12 billion, although imports grew faster at 7.6%.
Chief Economist Madan Sabnavis of Bank of Baroda noted a $10 billion increase in the trade deficit compared to the previous year. Despite this, non-petroleum and non-gems and jewelry exports showed improvement, with a 5.7% rise in July and a 6.1% increase for the first four months of the fiscal year.
Ashwani Kumar, President of the Federation of Indian Export Organisations (FIEO), attributed some of the decline in export values to falling prices for crude oil, commodities, and metals, as well as higher international freight costs. Some exporters have shifted focus to the domestic market due to reduced profitability in exports.
Exports of electronic goods surged by 37.3% from April to July, and trade in meat, dairy, and poultry rose by 56%. The Commerce Secretary mentioned that the higher domestic consumption, driven by India’s 7% growth compared to the global 3%, has also contributed to increased imports.
An analysis by Moneycontrol highlighted booming electronic exports, particularly smartphones, which saw a 31.7% increase to $4.9 billion in the first quarter of the year. The US, UAE, and Netherlands emerged as top destinations for these exports. Conversely, imports from China and Russia rose significantly, with China up 9.6% and Russia up 20.3% in April-July 2024.
Looking ahead, total exports are expected to rise by 6.7%, driven by strong service sector performance. India’s service exports likely grew by 9.9% in the first four months. Economists forecast the merchandise trade deficit to be around $11-13 billion in Q1 and $13-15 billion in Q2 of FY2025. Additionally, lower duties post-Union Budget may lead to increased gold imports, which totaled $3.13 billion in July.
Overall, India’s current account deficit is projected to remain within the 1-1.5% range for FY25.
