India’s October Trade Gap Hits Record as Festival Gold Buying and U.S. Tariffs Reshape Flows

India’s merchandise trade deficit widened to an unprecedented $41.7 billion in October, eclipsing the previous peak of $37.8 billion set in November 2024. Commerce ministry data released Monday show that a surge in gold imports during the festive period and weaker shipments to the United States were the primary drivers of the shortfall, well above the Reuters consensus forecast of $28.8 billion.

Festival demand fuels historic gold inflow

Imports of the precious metal reached $14.7 billion in October, almost triple the level recorded a year earlier. Analysts attribute the spike to elevated consumer purchases during India’s five-day festival season, when gold is traditionally viewed as both a luxury good and a store of value. Estimates indicate retail buyers acquired roughly $11 billion in gold during the period. The inflow dwarfed typical monthly volumes and materially expanded the overall import bill.

Gold’s outsized contribution contrasts with expectations of softer demand for the rest of the year. Domestic consultancies project a sequential pullback in November and December as festival-related buying subsides, potentially easing pressure on the trade balance. Historical analysis by the World Gold Council shows similar post-festival retrenchments in previous years.

U.S. tariffs suppress key export categories

October marked the second full month under Washington’s 50% tariff regime on selected Indian goods. Shipments to the United States fell 8.5% year on year to $6.3 billion, extending September’s decline. Nevertheless, the U.S. remained India’s largest single-country destination over the first seven months of the fiscal year that began in April, absorbing $52 billion of exports.

Several high-value categories registered double-digit contractions:

• Gems and jewelry exports fell 29.5% to $2.3 billion.
• Engineering goods shipments declined 16.7% to $9.4 billion.
• Cotton, man-made yarn and ready-made garment exports decreased 12%-13%.

Because the United States is the largest market for each of these segments, the new tariff structure has had a measurable impact on overall export revenue. Negotiations aimed at resolving trade irritants are ongoing, and recent statements from Washington and New Delhi suggest a willingness to consider gradual tariff rollbacks.

Shifting regional dynamics

While outbound volumes to the United States contracted, India’s exports to China expanded 42% year on year to $1.6 billion. The increase partially offset losses in Western markets and underscores the evolving composition of India’s trade relationships.

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Outlook for current account and policy response

ICRA Research, an affiliate of Moody’s, projects that merchandise imports will moderate in the final two months of the calendar year as gold demand normalizes and export activity stabilizes. Even so, the firm anticipates India’s current account deficit (CAD) will widen sharply to 2.4%-2.5% of GDP in the third quarter ending December 2025. For the full fiscal year ending March 2026, ICRA estimates a CAD of about 1.2% of GDP provided U.S. tariffs remain in effect through that period.

To reduce its bilateral surplus with the United States and improve negotiating leverage, New Delhi has accelerated purchases of U.S. crude oil and liquefied natural gas. Officials have also signaled intent to import American agricultural products, expanding a strategy that diversifies energy sources while addressing concerns in Washington about trade imbalances.

Meanwhile, policymakers are monitoring commodity prices, capital flows and currency movements for signs of sustained pressure on the rupee. Market participants expect the Reserve Bank of India to use available tools to maintain orderly conditions should the external gap deteriorate further.

Key figures

• October trade deficit: $41.7 billion (record high)
• Gold imports: $14.7 billion (≈200% year-over-year increase)
• Exports to U.S.: $6.3 billion (-8.5% y/y)
• Exports to China: $1.6 billion (+42% y/y)
• Previous trade deficit record: $37.8 billion (November 2024)
• Projected CAD Q3 FY25-26: 2.4%-2.5% of GDP

With negotiations still underway and tariff relief uncertain, businesses across manufacturing, textiles and jewelry continue to adjust supply chains and pricing strategies. Market observers will track November data for early indications of whether the October deficit represents a one-off spike linked to festival gold demand or the start of a prolonged period of external pressure.

Crédito da imagem: Nurphoto via Getty Images