Trade Deficit to narrow from October peak, but will still be over H1 average of $20 billion

India’s goods import bill and trade deficit are likely to moderate this month from October’s record highs, but the trade balance is likely to stay adverse in the coming months on account of higher prices for key imports like oil and gold, weaker demand for exports and continuing curbs on wheat and rice.

Imports jumped 20.2% from September’s levels to hit $65.03 billion last month, led by oil imports surging to a seven-month high of $17.7 billion, gold imports rising 95.4% and silver almost 125%. With exports of $33.6 billion, this resulted in an all-time high deficit of $31.5 billion.

October’s deficit is sharply above the $20 billion average deficit recorded between April and September 2023 as both imports and exports lost momentum from a year ago, partly due to lower commodity prices and weak global demand.

“In value terms, the core trade (excluding petroleum and gems & jewellery items) deficit widened to a one-year high of $12.3 bn., primarily driven by chemical products, ores & minerals,” said QuantEco Research economists in a report terming October’s deficit “a rude shock”.

“On the non-core front, petroleum trade deficit widened to a 10-month high of $11.7 bn., while the Gems and Jewellery trade deficit widened to a record high of $7.5 bn. thanks to the spike in gold imports,” they added.

With oil prices, which had crossed $93 a barrel in September, easing a bit last month, taking the lag time in redrawing oil contracts, and some of the festive import demand cooling into account, QuantEco and Nomura expect November’s trade gap to narrow.

“However, still-high oil & gold prices, trade measures to tame domestic food prices and steady demand mean that the monthly goods trade deficit will likely remain closer to the $23-25 bn. range for now, unless oil prices change significantly,” Nomura economists Sonal Varma and Aurodeep Nandi said in a note attributing the record deficit to “idiosyncratic factors”.

QuantEco economists Yuvika Singhal and Shubhada Rao also believe the “upward bias” in trade deficits is expected to persist “on account of convergence of festive and wedding season demand, hardening of international commodity prices, lower reliance on Russia for crude imports, and administrative exim interventions by the government to curb inflationary pressures.”