• Of the 14 key sub-categories of exports, 10 registered annual expansion.
• Best performance was seen in the case of Electronic items yet again (1% YoY) followed by Agriculture and allied products (25.4%YoY), Plantation products (23.7%YoY), Marine products (15.8%YoY) and Machinery tools (12.7% YoY).
• In contrast, the drag on exports was led by Ores and minerals (-5%YoY), Petroleum products (-28.6%YoY), Gems and jewellery (-26.5%YoY), and Chemicals (-1.2% YoY), etc.
• In value terms, electronic exports at USD 3.6 bn in Dec-24, were at a record high
• Core merchandise exports (i.e., exports excluding Petroleum and Gems & Jewellery) rose in Dec-24 to USD 31.0 bn, clocking a sequential growth of 17.6%MoM led by sub-categories of Machinery, Chemicals, Agri & allied products and Textiles.

Merchandise Imports

Merchandise Imports eased to USD 60.0 bn (-7.7% MoM and +4.9% YoY) from a record high of USD 65.0 bn in Nov-24

• At a granular level, 9 out of 15 key import sub-categories registered annualised expansion.
• Strongest growth was clocked by Textiles (57.8% YoY), Agriculture and allied products (20.3% YoY), Gems and jewellery (19.4% YoY) and Machinery (13.0% YoY)
• In contrast, the drag on imports emanated from Ores and minerals (-26.1% YoY), Leather goods (-12.3% YoY), Project goods (-12.4%) and Base metals (-10.7% YoY).
• Unlike headline imports that showed a decline, core merchandise imports (i.e., imports excluding Petroleum and Gems & Jewellery) rose to USD 38.3 bn in Dec-24 from USD 32.4 bn in Nov-24. On an annualized basis, core merchandise imports clocked a growth of 3.9% after slipping into contraction over the previous two months.

Merchandise Trade Balance

• Sequential improvement in the monthly merchandise trade deficit was driven by the non-core deficit, which declined by USD 7.2 billion.
  • Within the Non-core deficit, Gems & jewellery deficit eased to USD 4.3 bn from a record high of USD 9.5 bn in Nov-24
• Core deficit too eased, albeit by a lower magnitude of USD 3.8 bn to USD 7.3 bn in Dec-24, led by Electronics items.

Services Trade

The estimate for services trade surplus in Dec-24 rose marginally to USD 15.1 bn compared to USD 14.8 bn in Nov-24. Exports rose on a sequential basis, at a faster clip compared to imports.

On an Apr-Nov FYTD basis, the services trade surplus has continued to grow at a healthy pace of 9.3 %YoY, albeit lower than 15.2% over the corresponding period in FY24. Services exports have remained resilient, benefitting from the proliferation of Global Capability Centres (GCCs) that have helped to diversify exports beyond the traditional IT services.

Past Data Revisions

The import data estimates for Apr-Nov-24 were recently revised lower by USD 12.1 bn to USD 473.6 bn from USD 485.7bn. The corrections primarily affected gold import data, which was revised downward by USD 8.5 bn for the period, alongside minor reductions in silver and electronics imports.

• For Nov-24 alone, gold imports were slashed by ~USD 5 bn following the discovery of a calculation error caused by double-counting shipments stored in warehouses.  
• As per media reports, the reconciliation is likely to continue until Feb-25.

Outlook

Notwithstanding the downward revision in data for gems and jewellery imports, the magnitude for Nov-24 at USD 11.6 bn remains elevated. This possibly reflects the price impact of higher international prices along with strong domestic demand with the onset of the wedding season. The average price of gold, as well as silver, is up by ~27%YoY on an FYTD basis.

On the import side, going ahead, oil imports could see some upside pressure owing to the imposition of fresh US sanctions on Russian crude, which has pushed Brent price to a 7-month high of USD 82 per barrel in Jan-25 so far. More so, the global outlook with respect to lingering geopolitics, as well as the impact of tariff wars, remains on close watch for the likely impact on India’s trade going into FY26.

For now, we acknowledge moderate downside risk to our FY25 and FY26 current account deficit estimates of 1.2% of GDP on account of sharp revisions to past data. We await the completion of the data revision exercise, likely by Feb-25 by the commerce ministry to adjust our projections accordingly thereafter.

Rupee Outlook

The Indian rupee has created a fresh all-time low in Jan-25 and is currently trading close to 86.5 levels. The Indian rupee has weakened by 3.1% since Oct-24, in contrast to a phase of range-bound movement that prevailed over the previous 25-month period. Nevertheless, rupee’s volatility compared to key DM an EM peers remains low (since Oct-24, INR has outperformed all G10 currencies ex USD, while within the EM space, it has underperformed most of the key crosses barring VND (Vietnam) and BDT (Bangladesh), which have seen a comparable outturn).

The recent weakness reflects broad-based strength in the USD, esp. post Trump’s re-election and the reversion of dovishness by the US Fed. In addition, adverse developments in India’s near-term growth-inflation-trade deficit are also likely to have played a role.

 Although the RBI has been actively trying to curb currency volatility, it has come at the cost of a rapid erosion of its foreign currency assets (RBI’s FCA saw a drop of USD 71 bn between Jan 3, 2025 and Sep 27, 2024).

Considering the material risks associated with the simmering geopolitical and a likely new geoeconomic environment, we had already revised our  fiscal year-end INR forecast to 86.5 from 85.5 earlier. A somewhat stable extrapolation in the near-term rests upon the following assumptions:

• Improvement in India’s growth-inflation balance in H2 FY25
• Supportive trade seasonality in the final quarter of the fiscal year
• Current levels of USD seem to be pricing in considerable degree of anxiety – some reversal in the near-term would not be surprising

Having said, we acknowledge that forecasting currency in an uncertain global environment (like threat to global trade and fresh sanctions on Russia) is fraught with challenges since there can be phases of overshoot/undershoot vis-à-vis equilibrium levels.

Says Suman Chowdhury, Chief Economist and Executive Director, Acuité Ratings & Research “After a solid display of resilience in the post Covid period, India’s external position is being tested by the stronger headwinds from Oct’2024. The expectation of higher growth prospects in USA and the material risks of a reversal in the disinflationary trends subsequent to the proposed trade disruptive tariff adoption by the new US government has taken the USD to a 27 month high while weakening most of the currencies in the developed and developing economies. While capital outflows have been rapid, the INR has come under increased pressure due to the higher trade and current account deficits. The sharp erosion in the forex reserves of RBI over the last 3 months has also weakened the sentiments in the forex market. We have kept our INR forecast at 86.5 to the USD as in end Mar’2025 but recognize the likelihood of a persistently intense pressure on the currency throughout CY2025.” 

Table 1: Highlights of India’s trade balance*

*Note: Numbers may not add up due to rounding off and revision in headline exports and imports

Chart 1: Monthly Merchandise and Services Trade Balance (USD Bn)