Trade deficit widens in April as gold imports add to pressure

India’s merchandise trade deficit widened to $28.38 billion in April as imports rose to a six-month high, with crude oil and higher gold imports adding pressure to the country’s external account.

Merchandise imports rose to $71.94 billion in April from $59.59 billion in March, while exports increased to $43.56 billion from $38.92 billion, government data showed. Economists polled by Reuters had expected a deficit of $26.5 billion, compared with $20.67 billion in March.

Crude oil was the largest driver of the widening trade gap. Oil shipments rose 53% from March to $18.63 billion in April, as the Middle East conflict disrupted supplies and raised energy costs.

Gold added another layer of pressure. Gold imports rose 84% from March to $5.63 billion in value terms, despite banks scaling back purchases during the month, as refiners increased imports of gold doré.

The rise in gold imports is politically and economically sensitive. India is the world’s second-largest gold consumer, and bullion imports have long contributed to pressure on the current account and the rupee. The April increase came as policymakers were already trying to conserve foreign exchange reserves amid higher oil prices and a weaker currency.

The government has moved to curb gold demand. India has more than doubled tariffs on gold and silver to 15% from 6% and tightened rules for duty-free gold used by jewellery exporters. Prime Minister Narendra Modi has also urged measures including fuel conservation, work-from-home practices and limits on travel and imports to conserve foreign exchange reserves.

Services trade provided some support. Services exports were estimated at $37.24 billion in April, while services imports stood at $16.66 billion, partly offsetting the merchandise deficit.

The April numbers underline the twin challenge facing policymakers: India must pay more for essential energy imports while also trying to reduce discretionary import demand, especially gold.

The rupee fell past 96 to the dollar after the trade data was released, according to Reuters, highlighting market concern over pressure on India’s external account.