In welcome relief, India’s merchandise exports rose 6.2% on-year to $33.6 billion in October, after contracting 2.6% in the previous month.

However, it is important to note the exports grew on a low base since merchandise exports stayed largely put sequentially. This was because exports of both oil and gems and jewellery - two of India’s top export commodities - remained subdued in October. That said, core exports rose 11.7% on-year during the month due to healthy exports of pharmaceuticals and electronic goods, among others.

A large part of the expansion in core exports is likely a reflection of stocking activities ahead of the festival season, especially in the United States (US), where private inventory investment increased notably in the third quarter. Given overall manufacturng activity remains weak in both the US and the Euro Area (the region’s gross domestic product contracted sequentially in the third quarter), it remains to be seen how long the rise in core exports sustains. To be sure, global growth is expected to weaken going ahead as the impact of higher interest rates gains strength.

Cumulatively, India’s merchandise exports have declined 7.0% on-year to $244.9 billion during April-October 2023, from $263.3 billion in the year-ago period.

The real surprise was the stark rise in merchandise imports in October, which had contracted consecutively in previous nine months. At $65.0 billion, merchandise imports were up 12.3% on-year in the month. i.e., double the pace of export growth. The increase in imports was boardbased, led by a surge in gems and jewellery imports, up 62.6% on-year to $10.5 billion from $6.5 billion year ago. Oil imports followed, up 8.1%; core imports rose 7.2%.

The high growth in gems and jewellery imports represents a 95.4% rise in gold imports (to $7.2 billion from $3.7 billion a year ago) and 124.6% higher silver imports ahead of the domestic festival and marriage season. On the other hand, the imports of pearls, precious and semi-precious stones continued to contract. This is worrisome since the category gets re-exported as opposed to the former which is mostly consumed domestically. That said, import of investment-related goods such as machinery and machine tools also rose significantly in October, suggesting domestic investment momentum not only continued but also gathered more steam post the monsoon season.

Given the sharper rise in imports than exports, the merchandise trade deficit rose to an all-time high of $31.5 billion in October, up from $19.4 billion in September and $26.3 billion in October last year. This will likely correct going ahead since the uptick in gold imports on account of festive demand should subside.

Cumulatively, given merchandise imports have contracted more (-8.9%) than exports (-7.0%) during April to October this fiscal, India’s merchandise trade deficit so far this fiscal stands at $147.3 billion, down from $167.1 billion in the year-ago period.

India’s services trade surplus rose marginally in September - the month for which final data is available - since services exports remained steady while services imports shrank.