Why India’s Trade Deficit Is Set To Widen Amid Rising Gold Imports?
India’s merchandise trade deficit is projected to widen to nearly USD 28 billion in September 2025, largely due to a sharp increase in gold imports, according to the Union Bank of India’s (UBI) latest economic report. The development signals persistent external sector pressure, even as export recovery remains gradual amid global demand moderation.
The report noted that gold imports have spiked as festive and wedding season demand accelerated, contributing to a higher overall import bill. While crude oil prices have remained relatively stable, the surge in non-oil imports has offset export gains from key sectors like electronics and engineering goods.
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UBI’s data suggests that while exports of petroleum products, pharmaceuticals, and chemicals held firm, demand from traditional markets such as Europe and East Asia remained subdued. Imports, however, rose faster due to bullion inflows, electronic components, and machinery.
The widening trade deficit could weigh on the rupee in the short term, especially if capital inflows remain muted. Economists believe that this imbalance could prompt the Reserve Bank of India (RBI) to intervene intermittently in the foreign exchange market to prevent excessive volatility. However, foreign exchange reserves remain comfortable, offering policymakers some cushion against external shocks.
India’s gold imports typically rise in the September–December quarter, coinciding with major festivals such as Diwali and Dhanteras. Analysts said a rise in global gold prices has not deterred buyers, as cultural and investment factors continue to drive demand. The trend reflects a broader shift where household savings flow into physical assets rather than financial instruments during periods of uncertainty.
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UBI also highlighted that the country’s services exports remain resilient, with IT, business process outsourcing, and financial services contributing strongly to the overall external balance. Still, the merchandise gap is expected to dominate the current account dynamics for the near term, keeping the deficit above the comfort zone of USD 20–22 billion.
Investor Takeaway: Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, observes that while gold demand underpins cultural spending, it also strains India’s trade metrics. For investors, tracking external sector indicators alongside capital flows offers crucial cues for equity allocation and rupee-sensitive investments.
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment adviser before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
