India Trade Deficit Eases as Oil Falls, Red Sea Attacks Rise

Shruti Srivastava, Bloomberg News

(Bloomberg) -- India’s trade deficit narrowed further from a record high in October as commodity prices eased and attacks on cargoes in the Red Sea curbed shipments.

The gap between exports and imports stood at $19.8 billion in December, trade ministry data showed Monday, close to the $20.08 billion deficit forecast by economists in a Bloomberg survey. Exports rose 1% from a year earlier to $38.45 billion in December led by growth in shipments of electronics goods. Imports declined 4.9% to $58.25 billion.

India’s trade deficit hit a record high in October as strong economic growth fueled imports, while exports eased. Softening commodity prices including oil have helped India cut its overall import bill since then, although prices have picked up in recent weeks amid turmoil in the Middle East.

Houthi militants in Yemen have increased attacks on cargo ships in the Red Sea, disrupting trade in the region and pushing up shipping rates. India may take a hit of about $30 billion on its total exports in the current fiscal year because of the crisis, a New Delhi-based think tank estimated.

“We are watching developments in Red Sea,” Commerce Secretary Sunil Barthwal told reporters in New Delhi.

The crisis has increased shipping costs, and imported goods are likely to become “significantly more expensive” due to the combined impact of higher freight costs, insurance premiums, and longer transit times, the trade ministry said in a presentation.

“Unless we have a definitive strategy for the Red Sea crisis, the trade situation will be challenging not only for India but for the entire global trade. Disruption of 15 days takes at least 60 days to normalise. The situation is very fluid,” said Ajay Sahai, Director-General of Federation of Indian Export.

A shrinking trade deficit will further curb the current account deficit, which narrowed in the July-September quarter, and ease pressure on the rupee.

According to presentations by the ministry, the India and UK are engaged in their 14th round of free trade negotiations. The majority of the chapters are either closed or at an advanced stage of negotiation, it said.

--With assistance from Anup Roy and Saket Sundria.

(Updated with chart, trade body comment)