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NRIPage | Articles | India's Trade Deficit Expands Amid Surge in Gold Imports: Economic Outlook | Get General Articles. Stay Informed on a World of Topics - NRI Page
India's trade deficit saw a notable increase in August, reaching $29.65 billion, up from $23.5 billion in July. This expansion was primarily driven by a sharp rise in gold imports, which totaled $10 billion—an astonishing 103.7% increase compared to the previous year. The surge in gold imports is linked to a reduction in customs duties, now set at 6%, which spurred consumers to stock up ahead of the festive season.
Madhavi Arora, lead economist at Emkay, noted that while the spike in gold imports was significant, it may represent a temporary phenomenon as purchases were frontloaded in August. She emphasized that it remains uncertain whether this trend will continue, suggesting that gold imports might stabilize around $3 billion per month, aiming to keep the fiscal year's total below $50 billion.
Dhiraj Nim of ANZ Research echoed these sentiments, stating that the gold import levels observed in August are likely an anomaly due to recent duty cuts. He projected an average current account deficit of approximately $23 billion for the remainder of the fiscal year.
The World Gold Council indicated that the current economic landscape is challenging to interpret, particularly with the upcoming US elections adding to market volatility. This uncertainty has led to an uptick in investor activity in the options market, reflecting varied views on potential interest rate cuts and election outcomes.
Despite strong exports at the fiscal year's outset, there has been a contraction in July and August, attributed to container shortages and impending tariff hikes on Chinese goods. With imports outpacing exports, particularly in steel from China and Vietnam, concerns over the merchandise trade deficit persist.
However, the situation is somewhat mitigated by a surplus in services trade and robust remittance flows, which are expected to keep the current account in check. Arora forecasts that the current account deficit for fiscal 2024-25 will likely be around 1.1-1.2% of GDP, supported by strong services exports in IT and consulting.
While foreign direct investment flows may face challenges due to slower global growth, India remains a leading destination for greenfield projects. Overall, the outlook indicates stable external fundamentals and manageable financing needs for the country moving forward.
