India's Trade Deficit Decreases in December as Rupee Recovers

New Delhi, Jan 15 (NationPress) India's trade deficit has narrowed to $21.94 billion in December, a significant reduction from $32.84 billion in November, driven by an increase in exports and a decrease in imports month-over-month.

In December, merchandise exports rose to $38.01 billion, up from $32.11 billion in November, while imports fell to $59.95 billion from $64.95 billion in the prior month.

However, on a year-on-year comparison, the trade deficit widened in December compared to $18.76 billion in December 2023. Merchandise exports saw a 1 percent decline from $38.39 billion in December of the previous year, while imports increased by 4.8 percent from $57.15 billion in December 2023.

In a positive development, the Indian rupee made a notable recovery on Wednesday, marking its highest single-day gain in 7 months to settle at 86.3625 against the US dollar, reflecting a 0.3 percent rise from the previous day's record low of 86.6475. Experts attribute this rebound to a weaker US dollar and increased dollar sales by foreign banks.

The revised trade deficit for November was adjusted downward as the government revised its estimate for gold imports to $9.84 billion from an earlier $14.86 billion estimate announced last month.

This $5 billion reduction in gold imports correspondingly decreased the trade deficit.

The new figures for gold imports are approximately 34 percent lower than those reported last month.

Sources indicate that the earlier high figure was a result of a double-counting error concerning gold imports stored in warehouses by custodians following a methodological change. Imports held by custodians in free trade zone warehouses were inadvertently included in the figures reported by domestic banks purchasing gold from custodians, leading to inflated estimates.

Despite a duty cut announced during the Union Budget in July 2024, gold imports have surged, with November's figures showing an increase over four times compared to $3.4 billion in the same month of the previous year, which raised doubts among market analysts.

This situation saw India's trade deficit reach a record high of $37.8 billion, indicating a weak external balance position that has negatively affected the rupee.

India's foreign exchange reserves have seen a recent decline but remain at a robust $634.59 billion as of January 3, per the latest RBI data.

Interestingly, gold reserves, part of the foreign exchange reserves, increased by $824 million to $67.1 billion during the week.

As the world's second-largest consumer of gold, following China, India heavily depends on imports to satisfy this demand, especially during festive and wedding seasons when gold is traditionally gifted to brides and grooms.