Trade deficit widens to 1-year high of $39.88 billion in October on record imports

A sustained increase in the trade deficit could affect the country's external balance and currency stability. BloombergAI Quick ReadIndia’s merchandise trade deficit widened to a one-year high in October as festive-season demand, higher crude oil prices and a sharp rebound in gold purchases pushed imports to a record level.

The trade deficit, which represents the difference between merchandise exports and imports, increased to $39.88 billion in October from $30.21 billion in September, according to government data released on Friday. The latest figure was significantly higher than the market estimate of $33.30 billion.

India’s merchandise exports surged 45% year-on-year to a record $49.47 billion in October, reflecting strong growth in outbound shipments. However, imports climbed 16.5% from a year earlier to an all-time high of $89.35 billion, widening the gap between exports and imports.

Petroleum products, electronics and machinery were among the major contributors to the increase in imports during the month, Commerce Secretary Rajesh Agrawal said. The sharp rise in imports highlights the impact of domestic consumption demand and higher energy costs on India's external trade position.

A significant contributor to the widening trade deficit was the sharp recovery in gold imports during October, as demand for the precious metal picked up during the festive season. Gold imports rose to $5.5 billion in October from just $1.8 billion in September.

The September figure was the lowest since March 2024. The earlier decline followed the government's decision to more than double the levy on gold imports to discourage purchases and conserve foreign exchange reserves. However, demand rebounded during October, coinciding with the festive period, when gold purchases traditionally increase in India.

The widening trade deficit could put renewed pressure on the Indian rupee by increasing demand for US dollars to finance imports. Higher import costs could also add to domestic inflationary pressures, particularly if elevated crude oil prices persist.

These developments could complicate the economic outlook at a time when India is already dealing with higher interest rates and concerns over the strength of consumer demand. A sustained increase in the trade deficit could also affect the country's external balance and currency stability.

The rupee recovered 0.9% in October after weakening sharply earlier in the year, supported by measures introduced by the Reserve Bank of India to stabilise the currency. The Indian currency has received additional support in November from easing crude oil prices and a reversal in foreign investment flows into domestic equities.

Foreign investors had recorded net outflows in the previous month before turning buyers again in November. The combination of softer oil prices and improving foreign capital flows has provided some relief to the rupee, although the widening trade deficit remains a potential source of pressure on the currency.