India’s Trade Improvements Amid Global Challenges and Domestic Shifts


By Aayush Khanna

India’s trade dynamics showed improvement in September 2023, with the merchandise trade deficit narrowing to US$19.4 billion, surpassing consensus estimates of US$23.3 billion. This positive shift was driven by a substantial double-digit decline in imports (-15% YoY) compared to a moderate dip in exports (-2.6% YoY).

For H1 FY24, the overall trade deficit contracted significantly by 17.9% YoY, primarily influenced by a greater fall in imports. Both petroleum and non-petroleum exports experienced a decline, reflecting subdued global demand. Electronic goods, notably, reported a contraction for the first time since March 2021. On the imports front, non-oil non-gold and oil imports continued to contract, indicating a slowdown in domestic consumer demand, while imports surged due to higher prices and a supportive base.

The service balance remained in surplus at US$14.5 billion in September 2023. However, a weak global backdrop, characterized by muted demand in the Euro area and a slow recovery in the Chinese economy, may pose challenges to India’s export performance. The import bill might also face pressure amid signs of a domestic demand slowdown, potentially widening the trade deficit.

While ongoing festive demand may provide support, factors such as global risk-off sentiment, and geopolitical concerns may weigh on emerging market currencies, including the INR. Despite these challenges, India’s steady economic performance, coupled with RBI’s active intervention and the inclusion of Indian debt in the global bond index, is expected to mitigate rupee volatility.


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