India trade gap widens to record as festive spending surges

India’s trade deficit widened to a record last month as imports surged, buoyed by strong consumer spending ahead of the festival season.

The gap between exports and imports unexpectedly swelled to US$31.46 billion in October, trade ministry data showed on Wednesday (Nov 15). The reading is significantly higher than the US$20.4 billion deficit forecast by economists in a Bloomberg survey and a gap of US$19.37 billion in September.

A 12.3 per cent jump in inbound shipments to a fresh high of US$65.03 billion came as demand for most items, including gold, electronic items and crude oil increased ahead of Diwali – the Hindu festival of lights. That offset a 6.2 per cent rise in exports to $33.57 billion. 

India’s trade growth is positive and “green shoots are visible”, Commerce Secretary Sunil Barthwal told reporters in New Delhi. 

Stronger spending is helping boost manufacturing and services activity in the country, seen growing at the fastest pace among major economies this year. While trade growth is an indicator of economic recovery, rising imports also pressurise external finances in the world’s third-biggest consumer of crude oil.

India’s widening trade deficit will put pressure on the currency, which already fell to a record low recently. A wider trade deficit also threatens to impact current account deficit which widened more than expected in the June quarter.

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“The festive and marriage season-led demand for gold and non-oil non-gold consumption durable goods has led to sharp widening of goods trade deficit in October,” said Madhavi Arora, an economist with Emkay Global Financial Services. “This will likely correct in coming months.” BLOOMBERG