Context

India’s merchandise exports, which shrank over 3% in 2023-24 — a year marred by multiple geopolitical and logistical disruptions to global trade — are off to a positive start this year.

Higher Gold Imports, Low Exports weigh as India’s Trade Deficit widens to $19.1 billion

• Modest Growth : In April, outbound shipments totaled $34.99 billion, showing a slight increase of 1.07% or $370 million compared to the previous year. 
  • Seventeen out of India’s top 30 export items experienced year-on-year declines, up from thirteen the previous month.
• Recovery in Key Sectors: In April 2023, goods exports plummeted by 12.7%, with 20 of the top 30 items experiencing a decline in export values. 
  • The marginal growth last month was predominantly fueled by four key items: pharmaceuticals, chemicals, electronics, and notably, petroleum products. 
  • The recovery of petroleum products, following a 35% contraction in March, was supported by the increase in global oil prices.
• Rise in Trade Deficit: The rise in oil and gold prices throughout April drove the country’s goods import bill up by 10.25% to exceed $54 billion. Consequently, last month’s trade deficit reached its highest level in four months, standing at $19.1 billion, nearly 22.5% higher than March’s deficit.
• Global Rush to Gold: A persistent global savings rush to gold as a safe haven, could keep pushing India’s favorite yellow metal’s prices higher.

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Reasons For Increase in India’s Trade Deficit

• Increase in Import of Gold: The trade deficit surged primarily due to a 32.3% year-on-year increase in gold imports, reaching $3.11 billion, and a 20.2% rise in oil imports, totaling $2.8 billion.
• Competition from Bangladesh and Vietnam: India has been losing ground to competitors such as Bangladesh and Vietnam in recent years due to issues in labor-intensive sectors like garments and footwear, where Bangladesh and Vietnam enjoy added advantage
• Import Dependency: High Dependency on Crude Oil, Gold, Electronics, and Machinery Imports Drives Trade Deficit.