Excessive Dependence: On India’s External Trade Landscape

India recorded an unprecedented goods trade deficit in October, signalling deep stress in its external sector.

India’s External Trade Deficit – October Highlights

• Goods Trade Deficit: Reached an all-time high of $41.68 billion in October, up from $32.15 billion in September. Exports are less than imports, causing a net outflow of foreign currency.
• Causes of Export Decline:
  • US Tariffs: US is India’s largest export market; 50% tariffs imposed in August reduced exports by 9%.
  • De-globalization: Global trend to minimize imports adversely affects Indian exports.
• Causes of Import Increase:
  • Precious Metals: Gold imports tripled and silver imports increased fivefold.
  • Hedging and Rupee Weakness: Rupee depreciated from ₹85.6 per dollar in April to ₹88.4 per dollar in October; investors and Foreign Portfolio Investors bought gold as a safe investment.
  • Oil Imports: Remain a constant contributor to import bills.
• Socio-Economic Consequences:
  • Job Losses: Decline in labor-intensive exports such as cotton yarn, garments, and engineering goods reduces factory production and employment.
  • Double Loss Cycle: Dependence on imported intermediate goods increases raw material costs, making final products expensive, which face high US tariffs, rendering them uncompetitive.

Measures Taken by Government to Reduce Deficit

• Relief Measures: ₹2,560 crore fund over six years to promote exports; RBI has provided additional support to exporters.
• Geopolitical Strategy: India is increasing imports from the US by 13–14% while reducing imports from Russia by 27% to encourage tariff concessions or an FTA.
• Need for FTAs: Competitors like Bangladesh and Vietnam benefit from US FTAs, giving their goods a price advantage; India is accelerating FTA negotiations.

Way Forward

• New Markets: India must find new markets such as Africa and Latin America to reduce over-dependence on the US.
• Strengthen Domestic Supply:  The domestic supply chain must be strengthened to reduce reliance on expensive imported raw materials.

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Conclusion

The massive October deficit might be a temporary shock, but it underlines the danger of putting all eggs in one basket. While a weaker currency can support exports to some extent, excessive depreciation becomes counterproductive.

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