india-s-trade-deficit-shrinks-but-yearly-gap-widens

India's trade deficit narrowed to $21.94 billion in December, down from a revised $32.84 billion in November, as exports rose while imports fell on a sequential basis.

Merchandise exports in December increased to $38.01 billion, up from $32.11 billion in November, while imports dropped to $59.95 billion from $64.95 billion in November. Economists had predicted that India's trade deficit in December would be $27.33 billion.

However, the trade deficit widened compared to December 2023, when it stood at $18.76 billion. December's exports were down by about one per cent year-on-year, from $38.39 billion. Imports, on the other hand, increased by 4.8 per cent from $57.15 billion in December 2023.

Earlier, the government had reported that India's trade deficit had reached an all-time high of $37.84 billion in November, but this figure was later revised to $32.84 billion following a revision of gold import data. The revision slashed gold import estimates by a record $5 billion, from $14.86 billion to $9.84 billion.

India's trade deficit will likely remain a key focus in the coming months, particularly with US President-elect Donald Trump set to take office on January 20.

Trump is planning to establish a new department called the External Revenue Service "to collect tariffs, duties, and all revenue" from foreign sources. He has also warned of 100 per cent tariffs on BRICS nations — a bloc including India and China — if they attempt to create a rival to the US dollar.

Indian officials are seeking to allay concerns for now, believing that Prime Minister Narendra Modi's good relations with Trump during his first presidency will continue. They also believe there is room to lower import duties for US goods as part of future negotiations, according to a Bloomberg report.

Trade experts note that a trade deficit is not necessarily a negative sign, especially if a country is importing raw materials or intermediary products to fuel manufacturing and exports. However, it can put pressure on the domestic currency.

While the Indian rupee may face further weakness due to a stronger US dollar, it is still expected to "outperform" other currencies in Asia's emerging markets in 2025, said Aastha Gudwani, India’s chief economist at Barclays Bank Plc.