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Record Trade Deficit Rings Alarm Bells for India’s FY25 Current Account
India’s November 2024 trade deficit ballooned to an all-time high of $37.84 billion as gold and oil imports surged. Despite robust service exports, the overall gap widened sharply — hinting at a much larger current account deficit for FY25. Here’s what the data reveals and why policymakers are on alert.
Written by: SERNET Research Team
Table of Content
Record trade deficit raises alarm bells for FY25 CAD
The trade deficit numbers for November 2024 came in as a nasty surprise. At $37.84 billion, it was the highest merchandise trade deficit ever; 20% higher than the previous record in October 2023. Merchandise Exports at $32.11 billion were lower than last year, but Merchandise Imports at $69.95 billion in November 2024 were sharply higher yoy. Within the import narrative, gold imports surged to a record $14.5 billion amidst festive demand and cessation of SGBs. To be fair, India reported a surplus of $18.0 billion in services trade, but still left a yawning overall deficit gap of $19.85 billion for Nov-24.
| Macro Variables (Trade Related) |
Nov-24 ($ Billion) |
Nov-23 ($ Billion) |
Change YOY (%) |
FY25 ($ Billion) |
FY24 ($ Billion) |
Change YOY (%) |
| Merchandise Exports | 32.11 | 33.75 | -4.86% | 284.31 | 278.26 | 2.17% |
| Merchandise Imports | 69.95 | 55.06 | 27.04% | 486.73 | 449.24 | 8.35% |
| Merchandise Trade Deficit | -37.84 | -21.31 | 77.57% | -202.42 | -170.98 | 18.39% |
| Services Exports | 35.67 | 28.11 | 26.89% | 251.94 | 220.08 | 14.48% |
| Services Imports | 17.68 | 13.68 | 29.24% | 132.47 | 116.01 | 14.19% |
| Services Trade Surplus | 17.99 | 14.43 | 24.67% | 119.47 | 104.07 | 14.80% |
| Combined Exports | 67.78 | 61.86 | 9.57% | 536.25 | 498.34 | 7.61% |
| Combined Imports | 87.63 | 68.74 | 27.48% | 619.20 | 565.25 | 9.54% |
| Overall Trade Deficit | -19.85 | -6.88 | 188.52% | -82.95 | -66.91 | 23.97% |
Data Source: DGFT and RBI
On a yoy basis, the merchandise trade deficit for Nov-24 is up 77.6%. Despite the services surplus rising by 24.7% yoy, the overall deficit has ballooned by 188.5% over last year. Clearly, the weak demand in several countries, cautious spending patterns globally and the trade constraints imposed by the West Asia crisis are having a major impact. The net result is that imports of oil and gold continue to spiral, but exports are under stress.
The bigger macro concerns is in the YTD figures (8 months) for FY25 over FY24. The merchandise trade deficit for FY25 surged by 18.4%. Despite a 14.8% increase in the services surplus, the overall deficit is up 24.0% yoy at $82.95 billion. This figure is critical as it directly and predominantly influences the current account deficit (CAD). Unlike FY24, the current account deficit (CAD) is likely to be a lot wider. Here is why!
Get Ready For A Much Wider Current Account Deficit In Fy25
As of date, we have official CAD data only for Q1FY25, when the CAD was 1.1% of GDP. The Q2FY25 is expected around the end of December and even the more conservative estimates peg the Q2 CAD at above 1.6% of GDP. However, the real challenge is going to be in the Q3FY25 CAD, which is likely to get closer to the range of 2.2%-2.4% of GDP. That is not great news for the rupee or for sovereign rating. If Trump gets aggressive on tariffs, Indian policymakers will have to really think out of the box to keep CAD in check!
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