India’s Trade Deficit and Economic Risks

• India’s trade deficit has seen a significant drop in momentum, with outbound shipment values shrinkling 1.5% in July and 9.3% in August.
• The record import bill hit $64.4 billion in August, resulting in a merchandise trade deficit of $29.7 billion.
• Despite the decrease in exports, imports have grown 7.5% over last July and 3.3% in August, lifting the deficit to a nine-month peak of $23.5 billion in July.
• The deficit is primarily led by gems and jewelry, with a minor impact from miscellaneous products and electronic items.
• India’s foreign exchange reserves reached a record high of $675 billion as of August 2, sufficient to cover 11.6 months of imports.
• The deficit is not a significant concern for a developing economy with high growth, as India’s demand for global products is expected to outpace the world’s demand for its exports.
• The upcoming U.S. election and tariff hikes on Chinese goods present a double-edged sword for players like India, as China’s demand for imports slips and its products are likely to be dumped in non-U.S. markets at throwaway prices.
• The road ahead for India’s trade is not likely to be smooth, with challenges to boosting the export growth engine, including the global economy slowing down, tariffs and non-tariff barriers, and new trade walls like the European Union’s Carbon Border Adjustment Mechanism and Deforestation Rules.