India’s trade deficit increased sharply in November, as imports surged and exports fell. According to data from the Ministry of Trade, the gap between imports and exports reached $37.8 billion, much higher than the $23 billion deficit that economists had predicted. In comparison, the trade deficit in October was $27.1 billion.
This widening deficit could further weaken India’s currency, which dropped 0.5% against the US dollar in November, marking its worst performance since March. Imports in November rose by 27% compared to the previous year, reaching $69.95 billion, while exports decreased by 4.9% to $32.11 billion. In October, India’s imports were $66.3 billion, and exports were higher at $39.2 billion.
The Reserve Bank of India (RBI) is believed to have stepped in to support the rupee after it hit a record low on Tuesday, driven by concerns over a significant increase in the country’s trade deficit. The rupee, which dropped to an all-time low of 84.92, was last seen at 84.9125 against the dollar. Traders speculated that the RBI intervened through state-run banks, offering dollars at levels of 84.92-84.93. “It’s typical for them (RBI) to step in at a certain level and maintain it for the rest of the session,” said a currency trader at a bank.
This foreign exchange intervention, along with revaluation losses, has led to a nearly $50 billion decline in India’s forex reserves during the current quarter.
The widening gap between imports and exports could put additional pressure on India’s economic outlook in the coming months.
Gold Import Error Inflates Trade Deficit
India’s record trade deficit and the rupee’s all-time low last month were due to a gold import calculation error, insiders revealed. Officials reportedly double-counted gold in warehouses after a July methodology change, inflating imports by up to 50 tons, or 30%, in November. Revised trade figures could correct the foreign exchange rate and ease concerns about the economy. Economists had speculated whether the gold surge reflected inflation fears or rural prosperity from a good harvest.
India reviews gold import data for errors
The Indian government is reviewing its gold import data after noticing an unusual rise in reported imports. Officials plan to verify the figures by checking records with the Central Customs Department. This review could uncover errors in the reported numbers, which might affect India’s trade balance and economic data.