India's trade landscape witnessed a dramatic shift in October 2023, as the country recorded an unprecedented goods trade deficit of $41.7 billion. This figure surpassed previous estimates and topped the record set in November 2024, as reported by LSEG data. A significant factor contributing to this widening gap was the surge in gold imports driven by festive season demand. During this period, gold imports soared to $14.7 billion, exhibiting an almost 200% increase compared to the same month last year. In fact, Indian consumers are believed to have spent approximately $11 billion on gold during the five-day festival window.
On the export front, India's performance was adversely impacted by elevated tariffs, primarily on shipments to the United States. Exports to the U.S. declined for the second consecutive month, falling by 8.5% year-on-year in October, totaling $6.3 billion. Despite this decrease, the U.S. continued to hold its position as India's largest export destination for the initial seven months of the fiscal year, with exports amounting to $52 billion.
Other key commodities also faced export declines, including gems and jewelry, which dipped by 29.5% to $2.3 billion, and engineering goods, which fell by 16.7% to $9.4 billion. The exports of cotton, man-made yarn, and ready-made garments experienced similar downturns, collectively down by 12% to 13%. Interestingly, while exports to the U.S. deteriorated, trade with China observed a notable increase, rising 42% to $1.6 billion.
Looking ahead, analysts predict a potential easing of merchandise imports in November and December as the festival season concludes and gold purchases are expected to subside. However, a report from ICRA Research, a Moody's-owned credit rating firm, warns of a significant widening of India's current account deficit, forecasted to reach between 2.4%-2.5% of GDP for the third quarter of the fiscal year ending March 2026. If the current U.S. tariffs remain in place until the end of March 2026, the current account deficit as a percentage of GDP may stabilize around 1.2% for the fiscal year.
Trade discussions between India and the U.S. have been ongoing, yet a conclusive agreement remains elusive. Recently, signs that both countries may be softening their positions emerged, with suggestions from U.S. President Donald Trump indicating a potential reduction in tariffs directed towards India.