^{Photo: The Economic Times}

India’s merchandise trade deficit rose to an unprecedented 41.7 billion dollars in October, marking the sharpest monthly gap in the country’s trade history. The spike was driven primarily by an extraordinary jump in gold imports during the festive season and a notable slowdown in shipments to the United States, which continue to face the impact of elevated tariff barriers.

The deficit figure came in far higher than market expectations. Analysts surveyed by Reuters had projected a shortfall of 28.8 billion dollars, making the actual number almost 45 percent above estimates. The previous record of 37.8 billion dollars, logged in November 2024, has now been surpassed according to data compiled by LSEG.

Gold imports surge as festive demand accelerates

India imported 14.7 billion dollars’ worth of gold in October, an increase of nearly 200 percent compared to the same month last year. This surge coincided with a packed festive calendar that typically boosts consumer appetite for jewelry. Industry groups estimate that during the five-day holiday period alone, Indian buyers purchased roughly 11 billion dollars in gold. Jewelers also reported strong footfall and robust pre-booking activity in the weeks leading up to the season, a trend that amplified the month’s import bill.

U.S. shipments fall under tariff pressure

The trade data also highlights continuing strain in India’s exports to the United States. Since the 50 percent tariff hikes came into effect at the end of August, shipments to the U.S. have declined for two straight months. Exports dropped 8.5 percent year over year in October to 6.3 billion dollars. Despite this decline, the United States remained India’s largest export market during the first seven months of the fiscal year with total shipments of 52 billion dollars.

Multiple key sectors experienced double-digit contractions. Exports of gems and jewelry fell 29.5 percent to 2.3 billion dollars, engineering goods dropped 16.7 percent to 9.4 billion dollars, and exports of cotton yarn, man-made fibers, and ready-made garments slid between 12 and 13 percent. These categories rely heavily on U.S. demand, making them particularly vulnerable to tariff-driven disruptions.

China-bound shipments show unexpected strength

In contrast to the slowdown in Western markets, India’s exports to China rose sharply. Outbound shipments reached 1.6 billion dollars in October, an increase of 42 percent. Analysts attribute the rise to a combination of stronger manufacturing demand in China and a recovery in selected raw material and intermediate-good categories.

Outlook and warnings from analysts

ICRA Research, a Moody’s-owned credit rating agency, expects that merchandise imports will ease in November and December 2025 as festive-driven gold purchases normalize. The firm also anticipates a gradual pickup in exports once temporary tariff-related disruptions stabilize. However, it issued a cautionary note regarding India’s broader external position.

ICRA estimates that India’s current account deficit could expand significantly to 2.4 to 2.5 percent of GDP in the third quarter of the fiscal year ending March 2026. If the current tariff regime imposed by the United States continues through March 2026, the agency projects that the full-year CAD ratio will be near 1.2 percent of GDP.

Diplomatic efforts and trade realignment

Trade talks between New Delhi and Washington have been ongoing for several months, but negotiators have yet to reach a breakthrough. Recent signals suggest that both sides may be moving toward compromise. U.S. President Donald Trump has indicated openness to reducing tariffs on certain Indian goods. In response, India has stepped up purchases of U.S. energy products, including oil and natural gas, in an effort to rebalance bilateral trade. The government is also weighing additional imports of American agricultural products to further narrow the surplus.

Overall, India’s October trade performance underscores the combined impact of seasonal consumption patterns, global tariff dynamics, and shifting export relationships. While some relief may emerge in the coming months, policymakers face mounting pressure to stabilize trade flows and safeguard growth amid volatile global conditions.