New Delhi, October 2025:
India’s trade deficit widened sharply to $32.15 billion in September 2025, the highest in over a year, driven by an extraordinary surge in gold and silver imports ahead of the festive season. The widening gap adds pressure on the rupee and foreign-exchange reserves at a time when US-India trade tensions are already weighing on exports.
Festive Season Sparks Bullion Buying Frenzy
Gold imports jumped 107% month-on-month to $9.6 billion, while silver imports rose 139% to $1.3 billion. The spike came despite record-high domestic prices—crossing ₹1.16 lakh per 10 grams—as jewellers and banks rushed to restock inventories before Dussehra and Diwali.
“Even at record highs, buyers continued chasing gold, driven by festive and investment demand,” said Chirag Thakkar, CEO of Amrapali Group, one of India’s major precious-metal importers. Dealers reportedly cleared shipments early to avoid higher import duties after global prices crossed $4,000 per ounce.
The trend highlights India’s deep-rooted cultural link with gold. According to the World Gold Council, Indian households now hold an estimated 34,000 tonnes of gold—worth nearly $3.8 trillion, or about 90% of the country’s GDP. “Physical demand for bars and coins continues to rise during festivals,” said Kavita Chacko, the Council’s research head for India.
However, jewellers expect a drop in ornament demand by up to 25–30% in volume terms this season as consumers opt for lighter jewellery or postpone purchases due to elevated prices.
Imports Rise Across Categories
While gold was the biggest factor, other import categories also expanded.
- Crude oil imports touched $14 billion, up from $13.2 billion in August.
- Electronics imports climbed 15% to $9.82 billion, underscoring India’s continued reliance on imported components.
- Fertilizer imports spiked 202% to $2.36 billion, ahead of the rabi sowing season.
Total imports grew 16.7% year-on-year to $68.53 billion, while exports rose a modest 6.7% to $36.38 billion.
Commerce Secretary Rajesh Agrawal noted that although September saw a sharp surge, cumulative gold imports for April–September were 8.7% lower year-on-year, indicating that the rise may be temporary and festival-driven.
US Tariffs Hit Indian Exports
Adding to the challenge, exports to the United States—India’s largest trading partner—fell 12% to $5.43 billion after President Donald Trump’s administration imposed 50% tariffs on Indian goods, citing continued purchases of Russian oil.
The duties have hit labor-intensive sectors such as textiles, shrimp, gems, and jewellery, reducing India’s price competitiveness against countries like Vietnam and Bangladesh.
“India’s manufacturing ambitions face a setback if tariffs persist,” warned Shilan Shah, Deputy Chief Economist at Capital Economics. He estimates the tariffs could shave 0.6 percentage points off India’s GDP growth in FY 2025-26.
Despite the setback, overall merchandise exports have shown resilience—growing 6.7% year-on-year in September. “Even amid policy uncertainty, India’s exports have grown consistently this fiscal year,” Commerce Secretary Sunil Barthwal emphasized.
Rupee Under Pressure as RBI Steps In
The widening trade gap pushed the rupee close to ₹89 per dollar before the Reserve Bank of India (RBI) intervened to stabilize the currency. Analysts say the central bank used part of its $640 billion in reserves to curb volatility.
While a weaker rupee can make exports more competitive, sustained depreciation risks fueling inflation by raising import costs—particularly for oil and electronics.
Global Headwinds, Domestic Resilience
The International Monetary Fund (IMF) recently revised India’s growth forecast upward to 6.6% for 2025, citing robust domestic demand that has offset external shocks. The IMF noted that India’s “positive growth momentum has outweighed the effects of higher trade barriers.”
Meanwhile, New Delhi and Washington are preparing for trade talks aimed at easing tariff pressures. Officials say India may boost energy imports from the US in exchange for tariff relief on key export sectors.
At the same time, India is diversifying its trade portfolio—expanding shipments to the UAE, Netherlands, and Australia—to reduce dependence on the US market.
The Road Ahead
As the festive season continues, analysts expect the trade deficit to remain elevated through December due to sustained gold and energy demand. “Emotional buying often overshadows data-driven decisions during festivals,” said Alok Jani, founder of Weekend Investing, noting that gold prices typically stay firm during this period but may not always offer attractive investment entry points.
Economists stress that the deficit highlights structural realities: India still imports much of its energy, electronics, and precious metals needs. Addressing these gaps through domestic manufacturing and export diversification will be essential to achieving long-term external stability.
Despite the widening deficit, India’s economy remains fundamentally strong—supported by services exports, robust consumption, and policy focus on manufacturing and infrastructure. But balancing festive-driven demand with macroeconomic prudence will be key to sustaining momentum through the year-end.
