India’s trade figures for July 2024 underscore some concerning trends that reflect deeper structural issues within the economy. The trade deficit reaching a ninemonth high of $23.5 billion is a stark reminder of the challenges India faces in balancing its trade equations. While a trade deficit in itself is not unusual for a developing economy, the reasons behind the widening gap in July call for closer scrutiny. One of the primary drivers of the trade deficit was the sharp decline in petroleum exports. Falling global oil prices played a role in this, but the decrease in export volumes also points to a shift in domestic dynamics. India, being a net importer of crude oil, has always been vulnerable to fluctuations in global oil prices.

However, the 22 per cent drop in petroleum product exports, coupled with a 17.4 per cent increase in petroleum imports, highlights a more significant challenge: rising domestic consumption. The increase in domestic consumption of petroleum products is indicative of growing energy demands in the country, which is not necessarily negative. It suggests economic activity is picking up, and industries are operating at higher capacities. However, this increased consumption also means less surplus for exports, thereby exacerbating the trade imbalance. This raises a critical question: Is India prepared for the dual challenge of meeting rising domestic energy demands while maintaining a sustainable export surplus in petroleum products? Another dimension to consider is the surge in imports beyond just petroleum.

The growth in imports of electronic goods, non-ferrous metals, iron and steel, and chemicals signify robust demand within India. While this is a positive indicator of economic activity, it also suggests that India’s manufacturing sector is still heavily reliant on imported inputs. The “Make in India” initiative, which aims to boost domestic manufacturing and reduce dependence on imports, seems to be facing significant hurdles. The continued high import levels indicate that local industries are either unable to produce these goods at competitive prices or that there are supply chain bottlenecks that need addressing. The global economic environment adds another layer of complexity to India’s trade scenario. With geopolitical tensions, supply chain disruptions, and volatile commodity prices, India’s external sector is exposed to multiple risks. The on-going fluctuations in crude oil prices, for example, make it difficult for policymakers to navigate a steady course. The challenge lies in managing these external shocks while fostering a more resilient domestic economy. To address these concerns, India needs a multipronged strategy. On the one hand, there is an urgent need to diversify the export basket. Relying heavily on petroleum products exposes the country to the vagaries of global oil markets. Expanding exports in sectors like pharmaceuticals, information technology, and renewable energy could help mitigate this risk. On the other hand, reducing import dependence by bolstering domestic manufacturing capabilities should be a top priority.