August Trade Deficit Surges Due to Gold Imports
In August, India's trade deficit peaked at a ten-month high due to a record increase in gold imports spurred by a reduction in customs duty and festive demand. Although services exports remain robust, the growth in the IT sector is expected to slow down.
- Country:
- India
The surge in India's trade deficit for August, hitting a ten-month high at USD 29.7 billion, was chiefly driven by record gold imports totaling USD 10.1 billion, according to Emkay's recent report. This import spike was attributed to the reduction in customs duty and increased demand ahead of the festive season.
'The import surge was led by gold, which rose to a record level of USD10.1bn after averaging USD3.2bn in the first four months of FY25. This was likely due to the sharp cut in customs duty on gold, along with higher demand ahead of the festive season,' the report stated. Emkay also noted a slowdown in services exports, predicting single-digit growth for the IT sector in FY25. However, non-IT services are expected to maintain steady growth, partially offsetting the IT sector's deceleration.
'We continue to expect robust services exports growth in FY25, led by higher growth in non-software services; software services growth may slow to low single-digits,' the report added. India's current account deficit (CAD) for FY25 is projected to remain steady at 1.1-1.2% of GDP, with a BoP surplus around USD 28-30 billion, supported by strong services exports and moderated capital inflows.
Overall, merchandise imports rose by 12% month-on-month (MoM) to USD 64.4 billion, while exports grew at a slower pace of 2.4% MoM to USD 34.7 billion. The core goods deficit widened as core imports increased by 6.9% MoM, outpacing a 0.3% decline in core exports. Electronic goods imports showed robust sequential and year-on-year growth, indicating a recovery in domestic demand. Meanwhile, the oil trade balance improved, with oil exports up by 13.9% MoM and oil imports down by 20.6%, aided by lower global crude prices.
(With inputs from agencies.)
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