India’s Trade Deficit Soars in August Due to Record Gold Imports
In August, India’s trade deficit surged to a ten-month high of USD 29.7 billion, primarily driven by record gold imports totaling USD 10.1 billion. This spike in gold imports was due to a reduction in customs duty and increased demand ahead of the festive season.
Overall merchandise imports rose by 12% month-on-month (MoM) to USD 64.4 billion, while exports grew at a slower pace of 2.4% MoM to USD 34.7 billion. The core (non-oil, non-gold) goods deficit also widened, as core imports increased by 6.9% MoM, outpacing a 0.3% decline in core exports.
Electronic goods imports showed strong sequential and year-on-year growth, indicating a recovery in domestic demand. Meanwhile, the oil trade balance improved, with oil exports increasing by 13.9% MoM, while oil imports fell by 20.6%, helped by lower global crude prices.
In the services sector, India’s trade surplus rose to USD 15 billion. However, the growth in services exports is slowing, with the IT sector expected to see a decline to single-digit growth in FY25. Non-IT services are expected to grow steadily, offsetting the slowdown in the IT sector.
India’s current account deficit (CAD) for FY25 is projected to remain at 1.1-1.2% of GDP, similar to FY24 levels. The balance of payments (BoP) surplus is likely to be around USD 28-30 billion, supported by strong services exports and moderated capital inflows.
Doubts Revealed
Trade Deficit -: A trade deficit happens when a country buys more goods from other countries than it sells to them. It means spending more money on imports than earning from exports.
Gold Imports -: Gold imports refer to the gold that India buys from other countries. People in India buy a lot of gold, especially during festivals and weddings.
Customs Duty -: Customs duty is a tax that the government charges on goods coming into the country. If the duty is reduced, it means people have to pay less tax on those goods.
Festive Season -: The festive season in India includes celebrations like Diwali and Dussehra. During this time, people buy more gold and other items for gifts and rituals.
Merchandise Imports -: Merchandise imports are goods that India buys from other countries, like electronics, machinery, and clothes.
Exports -: Exports are goods that India sells to other countries, like spices, textiles, and software services.
IT Services -: IT services are jobs related to computers and technology, like software development and tech support. India is known for its strong IT industry.
Non-IT Services -: Non-IT services are jobs that are not related to computers and technology, like tourism, healthcare, and education.
Current Account Deficit -: The current account deficit is when a country spends more money on foreign trade than it earns. It includes trade in goods, services, and money transfers.
GDP -: GDP stands for Gross Domestic Product. It is the total value of all goods and services produced in a country in a year.
