India’s goods trade deficit narrowed more than expected in August as gold imports nearly halved, helping offset a small fall in merchandise exports. However, higher crude oil prices are emerging as a key concern for the country’s import bill and inflation outlook.
Government data released on Tuesday showed that India’s goods trade deficit narrowed to $26.86 billion in August, down from nearly $32 billion in the previous month, according to Reuters.
The decline came mainly from a sharp fall in imports, particularly gold.
India’s gold imports fell to $2.3 billion in August, from $4.16 billion in July.
Gold inflows had jumped in July as businesses and traders rebuilt inventories ahead of the festive season. The sharp correction in August helped bring down India’s overall import bill.
Total merchandise imports fell to $70.67 billion in August, from $76.22 billion in July.
However, the import picture was mixed. Crude oil imports rose 25.8% year-on-year to $16.69 billion in August, reflecting India’s continued dependence on imported energy.
The rise in oil prices is a concern as geopolitical tensions in the Middle East disrupt supplies and shipping routes.
India’s crude oil basket averaged $90.19 a barrel in August, up from $82.04 in July. It has climbed further to $109.76 a barrel so far in September, according to government data.
Further, the country’s merchandise exports fell marginally to $43.81 billion in August, from $44.24 billion in July.
Despite the month-on-month decline, August exports were the highest for the month in at least a decade, according to the data.
The government is also looking to reduce its dependence on a limited number of export markets.
India’s trade deal with Britain is now in force, while a broader trade agreement with the European Union is moving towards implementation. These deals could provide greater market access for Indian exporters.
The services sector continued to cushion India’s overall trade position.
India’s services exports were estimated at $38.87 billion in August, while services imports stood at $21.42 billion. This resulted in a services surplus of more than $17 billion.
Goods and services exports together rose nearly 25% year-on-year to $82.68 billion in August.
The overall goods and services trade deficit narrowed to $9.41 billion, from $11.62 billion a year earlier.
Economists at Barclays said the August goods trade deficit narrowed as non-oil and non-gold imports corrected from July’s record level. The wider services surplus also helped improve the overall trade position, mentioned Reuters.
Engineering and electronics exports also recorded growth, providing support to India’s export performance.
Automobile exports were another bright spot in August.
Data released by the Society of Indian Automobile Manufacturers showed that India’s auto exports rose 22.2% year-on-year to 681,000 units during the month.
Two-wheelers and three-wheelers led the growth. However, passenger vehicle exports declined 17%.
The performance highlights the growing contribution of manufactured goods to India’s exports as the country looks to diversify its export basket.
The US continued to be the largest destination for Indian merchandise exports.
Goods exports to the US rose to $42.79 billion during April-August, compared with $40.39 billion in the same period a year earlier.
The government is seeking to widen India’s export base by opening up more markets and strengthening trade ties with key economies.
While the fall in the August trade deficit offers some relief, higher oil prices remain a risk. With India importing a large share of its crude oil needs, a sustained rise in global energy prices could push up the import bill and add to domestic inflation pressures.