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India's November 2024 trade data revealed a significant shift in its export landscape. For the first time this year, services exports surpassed goods exports, driven by strong growth in IT and other service sectors. This positive development is contrasted sharply by a record-breaking goods trade deficit, reaching $37.84 billion. This unprecedented deficit is primarily attributed to a dramatic increase in imports, particularly gold, which surged over three times compared to the previous year. The surge in gold imports, reaching $14.8 billion, is directly linked to the festive and wedding season, further amplified by the government's earlier reduction in import duty on gold from 15% to 6%. While this surge in gold imports significantly contributed to the overall deficit, it's important to note that other imports also experienced a relatively milder increase, contributing to the overall negative balance of trade.
The increase in imports stands in contrast to the performance of certain export sectors. Electronic goods exports demonstrated robust growth, surging by 54.72% to $3.4 billion, while engineering goods exports also saw a significant jump of 13.75%, reaching $8.89 billion. These positive trends highlight the resilience of specific sectors within the Indian export market, even in the face of global economic headwinds. However, overall goods exports declined by 4.83% compared to the previous year, reaching $32.11 billion. This decline is attributed to a confluence of factors, including weak global demand, particularly from Western markets, and increased shipping costs resulting from disruptions in the Red Sea. These disruptions, stemming from geopolitical tensions, have significantly impacted trade routes and added complexity to the logistics of exporting Indian goods.
Experts offer varying perspectives on the implications of these figures. Commerce Secretary Sunil Barthwal highlighted the consistent growth in India's non-petroleum exports and the sharp rise in services exports. He attributed the disparity between imports and exports to the faster growth rate of the Indian economy (7%) compared to the global economy (3-3.5%), leading to higher import demand. Aditi Nayar, Chief Economist at ICRA Ltd, emphasized the record-high merchandise trade deficit, highlighting the unprecedented level of gold imports and their potential impact on India's current account deficit. She anticipates that the surge in gold imports, largely driven by festive demand, is unlikely to persist, potentially easing the trade deficit in the coming months. However, she cautioned that the November 2024 figures will likely result in a sharper-than-expected widening of India's current account deficit in the third quarter of fiscal year 2025.
Former trade officer Ajay Srivastava pointed to the long-term trend of higher services growth exceeding the growth of merchandise exports. He highlighted the consistent and robust growth of services exports (CAGR of 10.5% between FY19 and FY24) compared to merchandise exports (CAGR of 5.8% during the same period). Based on these trends, Srivastava projects services exports to surpass merchandise exports by FY2030, reaching $618.21 billion compared to $613.04 billion for merchandise exports. This projection underscores the growing importance of the services sector in India's overall export strategy and its potential to offset challenges in the goods sector. Ashwani Kumar, President of the Federation of Indian Export Organizations (FIEO), attributed the decline in goods exports to ongoing global economic uncertainties, including international trade disruptions and volatility in crude and metal prices. He also highlighted the ongoing geopolitical tensions in the Middle East and their impact on logistical challenges and trade finance, particularly affecting small and medium-sized enterprises (SMEs).
In conclusion, India's November 2024 trade data paints a complex picture of a dynamic economy. While the record goods trade deficit raises concerns, the surpassing of goods exports by services exports marks a significant milestone. The strong performance in certain export sectors and the long-term positive trend in services exports offer a degree of optimism. However, the challenges posed by global economic uncertainty, geopolitical tensions, and high import costs cannot be ignored. Addressing these challenges and fostering a more balanced trade relationship will be crucial for sustaining India’s economic growth and maintaining its competitiveness in the global market. Further analysis and strategic interventions are needed to mitigate the impact of these fluctuating trade patterns and ensure the continued success of India's diverse export portfolio. The government's role in supporting export-oriented industries, streamlining trade processes, and mitigating the impact of global uncertainties will be key to navigating these challenges and securing a more sustainable and prosperous future for India’s economy.
Source: Services exports pip goods for first time in 2024, merchandise deficit at record high