A bumpy trajectory
India’s merchandise trade deficit reached a record high of USD 37.84 billion in November 2024, up from USD 27.1 billion in October. This troubling development is an indication of both declining exports and a surging import bill. It also raises concerns about the country’s economic health, currency stability, and overall global competitiveness. Merchandise exports in the month of November registered USD 32.11 billion—a noticeable drop from October’s USD 39.2 billion. Meanwhile, imports climbed to USD 69.95 billion. Over the April-November 2024 period, the cumulative merchandise trade deficit swelled to USD 202.42 billion, compared to USD 170.98 billion during the same period last year. It can be said safely that the challenges India faces in managing its trade balance are more than clear.
The decline in exports is being attributed partly to falling petroleum exports due to lower prices. However, non-petroleum exports have shown some resilience—growing by 7.75 per cent year-on-year in November. Sectors such as electronic goods, rice, and engineering goods have been key drivers of growth. Yet, traditional export strengths like gems and jewellery, along with petroleum products, have struggled. This signals a clear need for diversification and innovation in India’s export strategies. On the import front, the situation seems equally concerning. Imports grew by 8.35 per cent during April-November 2024, with November’s figure of USD 69.95 billion representing a substantial rise. While many imports are intermediate goods essential for manufacturing, the heavy dependence on crude oil continues to be a major vulnerability, as it exposes the economy to external price shocks and exchange rate fluctuations.
More importantly, the widening trade deficit has put pressure on the Indian rupee. The INR weakened by 0.5 per cent against the dollar in November. This marks its worst performance since March 2024. Though the Reserve Bank of India has enough reserves to manage short-term volatility, persistent deficits could erode investor confidence in the long term. India’s trade imbalance with countries like China and Switzerland is another issue of concern. Although certain experts argue that bilateral deficits are not much worrisome unless they lead to over-reliance on critical supplies, the overall rising deficit trend merits attention. Strengthening domestic manufacturing and reducing import dependency are critical steps to address this issue.
Amidst all this, the services sector offers a silver lining. Services exports in November 2024 were estimated at USD 35.67 billion—a significant increase from USD 28.11 billion in the same month last year. The services trade surplus for April-November 2024, too, rose to USD 119.48 billion, compared to USD 104.07 billion in 2023.
To tackle the widening trade deficit, India needs to take decisive steps. Enhancing the competitiveness of export sectors like electronics, engineering goods, and agriculture is of paramount importance. Expanding trade agreements, such as the upcoming India-UK Free Trade Agreement, could open new markets. At the same time, the Make in India initiative must be revitalised to boost domestic manufacturing and reduce reliance on imports. Investments in renewable energy and energy efficiency can help reduce dependence on imported crude oil. A strategic review of non-essential imports can also contribute to managing the deficit without harming growth. Meanwhile, the Reserve Bank of India should continue to stabilise the rupee to prevent further inflationary pressures.
To sum up, India’s widening trade deficit is a serious issue that requires urgent and focused action. While some level of deficit is manageable, the current trend of rising consumption and energy dependence is unsustainable. A balanced approach, which will combine strong export performance with prudent import management, is crucial for ensuring economic stability and resilience in the face of global uncertainties.
