India's goods trade deficit hits 6-month high as imports rise amid Middle East conflict

NEW DELHI: India’s merchandise trade deficit widened more than expected to a six-month high of $31.98 billion in July, as the Middle East war drove up the country’s oil import bill and global freight rates.

The data underscores the growing pressure on India’s external balance, as a wider trade gap weighs on the rupee and capital inflows.

A Reuters poll of economists expected the merchandise trade deficit in July at $30.20 billion. It stood at $30.43 billion in June.

Imports rose to $76.22 billion against $70.84 billion in June, driven by a rise in crude oil prices and surging imports of electronics goods and gold, data released by the trade ministry showed.

Imports of electronics goods, including chips, rose more than 44% year-on-year in July to $14.37 billion, and gold imports climbed nearly 5% to $4.16 billion.

Oil imports stood at $18.31 billion in July against $19.33 billion in June, reflecting higher global crude prices, data showed.

Goods exports hit a record high of $44.24 billion for July, surpassing the previous July peak of $38.34 billion in 2022, while they were $40.41 billion in June.

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Exports of petroleum products, electronics and engineering goods have grown strongly so far this fiscal year, while shipments to the Middle East rose 8.6% year-on-year to $5.7 billion in July, Rajesh Agrawal, trade secretary, told reporters.

The U.S. remained the top destination for Indian exports, with goods shipments at $33.49 billion in April-July, nearly matching last year’s level, data showed.

About 45% of India’s exports to the U.S. remain exempt from the new 10% duty introduced by Washington in July, and India was actively engaging with U.S. authorities to resolve outstanding trade issues, aiming for an early conclusion of a bilateral trade agreement, a trade official said.

Services exports remained robust at $35.89 billion in July, while services imports totalled $18.94 billion, resulting in a surplus of $16.95 billion, trade ministry estimates showed.

Shipping disruptions squeeze exporters

Freight rates on routes from South Asia to the United States and Europe have risen sharply in recent weeks, while rates to the Middle East remain elevated due to regional disruption, high fuel costs and tight vessel capacity, exporters and shipping-industry data showed.

The United States and Iran remain at loggerheads over efforts to agree to an end to the war, according to a senior Iranian source, who said there had been no progress in talks to revive the interim deal agreed in June and define a time frame to implement it.

The increase in freight rates is squeezing margins for exporters of rice, textiles, pharmaceuticals and engineering goods, who are also grappling with delayed shipments, stranded cargo and uncertainty over vessel schedules.

“Container shortages and shipping delays continued to disrupt the flow of materials, affecting production planning and throughput,” Shivanramatiswan Ganapathy, vice president at Gokaldas Exports, told investors after the company’s quarterly results on Wednesday.

India’s top exporters’ body has urged the government to engage with global shipping lines, saying higher freight costs and a shortage of containers were undermining exporters’ competitiveness.