India’s goods trade deficit narrows to a five-month low in September

India’s goods trade deficit narrowed to a five-month low in September, driven by a slight rise in exports on year. However, exports declined sequentially, indicating that the momentum remains fragile.

Imports hit their lowest since May, reflecting softer demand.

The trade deficit—the difference between exports and imports—stood at $20.78 billion in September, down from $29.65 billion in August, according to data released by the commerce ministry on Wednesday. For context, the deficit was at $23.5 billion in July, $20.98 billion in June, $23.78 billion in May, and $19.1 billion in April.

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Economists polled by Reuters had expected the trade deficit to come in higher, at around $25 billion, suggesting that the narrower gap in September offers some relief.

Trade dynamics

Merchandise exports rose marginally to $34.58 billion in September from $34.41 billion in the year-ago period. However, this annual increase was accompanied by a slight sequential decline from August’s $34.71 billion.

Exports have been declining in recent months, standing at $33.98 billion in July, $35.20 billion in June, and $38.13 billion in May, indicating volatile global demand.

Commerce secretary Sunil Barthwal emphasized the resilience of Indian exports despite challenging conditions. “Engineering goods, a crucial sector, now account for nearly a quarter of all exports,” Barthwal said, adding that growth in organic and inorganic chemicals, plastics, pharmaceuticals and readymade garments has helped exports.

“Despite global headwinds, these sectors have driven India’s export growth, positioning the country as a significant player in global trade,” he added.

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Merchandise imports stood at $55.36 billion in September, slightly above $54.49 billion in the same month last year, but down significantly from August’s $64.36 billion. The decline suggests weakening domestic demand.

Imports have also shown variability in recent months, registering $57.48 billion in July, $56.18 billion in June, and $61.91 billion in May.

Services sector

Services exports rose to $30.61 billion in September from $28.42 billion in the same period last year.

Services exports stood at $30.69 billion in August, $28.43 billion in July, $30.27 billion in June, $30.16 billion in May, and $29.57 billion in April.

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Services imports also increased, reaching $16.32 billion in September, up from $14.58 billion a year earlier. In August, services imports stood at $15.7 billion, compared with $14.55 billion in July, $17.29 billion in June, $17.28 billion in May, and $16.97 billion in April.

The combined value of merchandise and services exports reached $65.19 billion in September, slightly lower than $65.40 billion in August but higher than $62.42 billion in July. In September 2023, the total stood at $62.83 billion.

Taken on a year-on-year basis, the overall trade deficit, including both services and merchandise, widened to $6.49 billion in September, up from $6.23 billion last year.

Global headwinds

Barthwal acknowledged that India’s exports continue to face challenges from slowing global growth, geopolitical tensions in West Asia and Ukraine, and disruptions along the Red Sea trade routes.

In April, the World Trade Organization (WTO) had forecast a recovery in global merchandise trade in 2024, following a weak 2023 marked by inflation and high energy prices. The WTO expects trade volumes to grow by 2.6% in 2024 and 3.3% in 2025, though geopolitical risks remain.

India’s export drivers

During the first half of FY25 (April-September 2024), engineering goods, electronics, pharmaceuticals, chemicals and readymade garments were key drivers of merchandise exports.

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India’s major export destinations during this period included the US, the UAE, the Netherlands, the UK and China. On the import side, China, Russia, the UAE, the US and Iraq remained the top suppliers, reflecting the country’s dependence on key inputs and energy imports.

“Despite multiple challenges from geopolitical tensions, Indian engineering exports have maintained positive growth for the last five consecutive months. In September 2024, the total value of engineering goods exports stood at $9.82 billion, up 10.5% compared to $8.89 billion in the same month last year,” said Arun Kumar Garodia, chairman of the Engineering Export Promotion Council.

“It’s a positive development that Indian products are gaining global demand, and we are hopeful that this trend will continue,” Garodia said.

“Given India’s robust and resilient growth, all-time high forex reserves, the current account deficit well within manageable proportions, and the slew of export promotion measures put in place, India is well poised to navigate the external sector headwinds,” said Manoranjan Sharma, chief economist at Infomerics Ratings and former chief economist at Canara Bank.

“But heightened geopolitical tensions, geoeconomic fragmentation and volatile oil prices could make things difficult by slackening exports and steeply raising the value of imports since our oil imports are largely inelastic,” he added.

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