India’s goods trade deficit contracted to USD 26.9 billion in August, marking a month-on-month improvement of USD 5.1 billion. Despite this decline, analysts at Nuvama Research suggest the deficit is likely to stabilise near current levels, citing the persistent influence of global oil prices as a primary risk factor. In a recent report, the brokerage noted, “While the trade deficit has narrowed, it could stabilise around current levels with oil prices remaining the key monitorable.”
The reduction in the August deficit was largely supported by a USD 1.5 billion improvement in the oil trade balance, which stood at USD 9.9 billion, alongside a USD 1.3 billion decrease in the deficit for gold and precious metals. When excluding these volatile commodities, the core trade deficit also saw a reduction of USD 2.3 billion, settling at USD 15 billion. However, Nuvama highlighted that this core figure remains at near-record levels, even as improvements were observed across sectors such as agriculture, chemicals, electronics, and engineering goods.
Export performance showed significant momentum in August, with total goods exports rising by 26.1 per cent year-on-year, an acceleration from the 19.6 per cent growth recorded in July. Electronics exports were a major driver, surging by 51 per cent compared to 27 per cent the previous month. The report cautioned, however, that this spike in electronics trade appears to be partially influenced by rising chip prices. When electronics are excluded, the trend growth for non-oil exports remained steady at 12 per cent.
On the import side, overall goods import growth slowed to 14 per cent in August, down from 17.5 per cent in July. Conversely, core import growth trended upward to 24 per cent, fueled by robust demand for engineering goods, ores, and electronics. Looking forward, Nuvama Research indicated that the trajectory of the trade balance will depend heavily on the strength of non-oil exports and the pace of import demand. The brokerage also noted that strong Foreign Currency Non-Resident (FCNR) inflows are currently providing a buffer, which is expected to limit immediate pressure on the Indian rupee.
