India's Trade Deficit Shrinks To $24 Billion in November: What's Driving This Improvement?

The India-New Zealand FTA comes at a time when the South Asian nation narrowed its trade deficit significantly to $24 billion in November from $41.7 billion recorded in October.

Key Drivers Behind India's Trade Deficit Reduction

• The trade deficit decline last month was driven by a 19.3% YoY surge in merchandise exports and a 2%  year-on-year (YoY) contraction in total imports.
• The Non-oil exports grew ~20% YoY, while a 50.6% plunge in gold and silver imports accounted for over 70% of the month-on-month (MoM) deficit narrowing and more than 90% of the import decline. 
• Meanwhile, the non-oil non-gold imports rose 15% YoY. Oil imports fell 11.3% YoY, with YTD average down 3.9%, reflecting lower global prices.
• The services sector exports grew 11.7% YoY to USD 35.86 billion, while imports rose 4.1% to USD 17.9 billion, resulting in a net services surplus of USD 17.9 billion, signalling (+20.4% YoY), aided by a low base.
• Engineering goods exports jumped 32% YoY and electronics 31.7% YoY. On imports, iron & steel rose 7.5%, while fertilisers surged 73% in Nov and 80% YTD, raising dumping concerns.
• The exports to the US contracted marginally by 0.4% YoY as front-loading ahead of tariff hikes faded, while imports from the US soared 38% YoY, likely due to tariff adjustments.

Also Read: IND-NZ FTA: 5 Key Sectors To Benefit Amid Deepening Economic Ties

Is Reversal In India's Trade Deficit Trend Imminent?

Weakening rupee could inflate import bills and reverse deficit gains; ongoing dumping threatens domestic production; rising non-oil non-gold imports sustain imported inflation pressures. Meanwhile, the uncertainty that looms over the US-India trade deal timeline remains an overhang.
 

On the other hand, Tamil Nadu CM M. K. Stalin said the high US tariffs are causing “irreparable damage” to businesses in the region, whilst urging   Prime Minister Narendra Modi to urgently seek a trade deal with Washington to protect Tamil Nadu’s economy, describing the situation as an “escalating crisis” that is pushing many small and medium enterprises to the “brink of collapse”.