India’s Trade Deficit Narrows to $26.49 Billion Amid Tariff Impact

India’s merchandise trade deficit decreased to $26.49 billion in August, down from $27.35 billion in July. This change comes as both exports and imports experienced a slowdown following the imposition of higher tariffs by the United States on Indian goods. The latest data, released on August 15, 2023, marks the first significant report since the tariffs were implemented.

Exports from India fell to $35.1 billion in August, a decline from $37.24 billion in July. Concurrently, imports also dropped, decreasing from $64.59 billion in July to $61.59 billion in August. Economists had initially projected a deficit of $25.13 billion for this period, indicating that the actual figures were slightly higher than anticipated.

Impact of US Tariffs

The August data reflects the challenges facing Indian exporters after the United States raised tariffs to 25 percent on August 7, subsequently doubling them to 50 percent on August 27. This escalation was in response to India’s ongoing imports of Russian oil, a decision that has drawn criticism for perceived hypocrisy, given that the US continues to purchase Russian fertilizers and rare earths.

A statement released in conjunction with the data claimed that President Trump’s tariffs are “not at all hurting Indian exports to its largest market.” Shipments to the US, which make up approximately 20 percent of India’s exports, fell to $6.86 billion in August from $8.01 billion in July. The newly imposed tariffs have positioned India’s exports among the highest taxed by the US, raising concerns about future trade relations.

Services exports were estimated to be $34.06 billion, while imports in the same sector stood at $17.45 billion. This resulted in an overall goods and services trade deficit of $9.88 billion for the month. The persistent deadlock in negotiations over a trade deal between India and the US continues to impact trade flows significantly.

The Reserve Bank of India is expected to release more detailed services data in the coming weeks, providing a clearer picture of the ongoing economic situation. As the landscape of international trade evolves, stakeholders in both countries will be closely monitoring these developments.