Excessive dependence: On India’s external trade landscape

India’s record goods trade deficit in October ($41.68 billion) follows a sequential build-up from September ($32.15 billion), reflecting a disturbing turn in its external trade landscape. The shock from the U.S.’s tariffs has been largely responsible — a full 50% levy that came into effect in August — at a time when the U.S. had become India’s largest single export market (since about 2018-19). But the main cause of the 11.8% year-on-year (YoY) drop in goods exports to $34.38 billion ($38.98 billion in October 2024) and the precipitous rise in imports lies in a record surge in precious metal inflows. Gold imports nearly tripled from last October ($4.92 billion) and inbound silver rose more than fivefold. This suggests that the bullion surge is not merely seasonal but also a hedge against growing economic uncertainty. The rupee’s weakening from about ₹85.6 to a dollar in April to around ₹88.4 to a dollar in October, and the net foreign portfolio outflow in September (leading into a recovery in October) further corroborate the hedging. What is troubling about October’s merchandise data is the steep fall in exports of labour-intensive sectors such as textiles and apparel — cotton yarn and handlooms 13.31%; man-made yarn 11.75%; readymade garments 12.88%, and engineering goods 16.71%. The U.S. has been the largest market for these sectors for some years now. Overall exports to the U.S. declined by 9% YoY in October.

The import surge in goods value is partly explained by the depreciating rupee but also strongly suggests the increased use of cheaper imported intermediate goods to keep finished exports competitive, rather than domestic sourcing. The detailed HS-chapter breakdown of imports by commodity and source country will elucidate this further. Meanwhile, the Centre has stepped in with export-promotion initiatives, for ₹25,060 crore over six years, and the Reserve Bank of India has announced relief measures for exporters hit by tariff headwinds. Nonetheless, it is too early to conclude that this shift is structural rather than an immediate reaction to a major external shock. Rerouting of exports, new market access and supply-chain realignment take months if not years. The record October deficit may yet prove to be a blip, particularly if the India–U.S. Bilateral Trade Agreement is concluded swiftly and tariffs are rolled back. The steep drop in Russian imports (-27.73%) and a concurrent rise in U.S. imports (13.89%), suggest an attempt to assuage American concerns of a widening trade deficit, and to reduce Russian crude inflows. Even if the overall deficit persists, despite a thaw in U.S. relations, that would only point to a structural shift in India’s trade portfolio. While painful in the short term, such a shift may ultimately be desirable, as India’s heavy dependence on the U.S. export market has now exposed it to both diplomatic and economic vulnerability.