Dragged down by oil prices, India’s trade deficit in April widened more than expected, increasing pressure on the rupee to depreciate.

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Due to the ongoing conflict in the Middle East, India’s trade situation has sharply deteriorated. The soaring cost of oil imports has become the main driver behind the widening trade deficit.

On Friday, data released by India’s Ministry of Commerce and Industry showed that the trade deficit in April expanded to $28.38 billion, far exceeding March’s $20.6 billion, and also higher than the Bloomberg survey median of $25.97 billion. The rupee fell below 96 against the US dollar, hitting a historic low and becoming the worst-performing currency in Asia this year.

The root cause of the widening deficit lies at the import end. In April, total imports rose by 10% year-on-year to $71.94 billion, with oil imports reaching $18.62 billion—jumping more than 50% from March; gold imports also amounted to $5.63 billion, further aggravating the outflow of foreign exchange.

Facing the pressure, the Indian government took urgent action. For the first time in four years, retail fuel prices were raised, and gold imports were tightened. Prime Minister Modi publicly urged the people on Sunday to reduce fuel consumption and suspend gold purchases for one year.

Driven by Oil and Gold, Import Costs Surge

The import end is the core driving force for the widening deficit, with oil and gold constituting the two main sources of pressure.

In April, total imports rose by 10% year-on-year to $71.94 billion. Among these, oil imports reached $18.62 billion, jumping more than 50% from March’s $12.18 billion. The Strait of Hormuz is a key channel for India’s energy imports. After the outbreak of the Iran war, the strait has been blocked for more than two months, and India, as the world’s third-largest oil importer, bears the brunt. In April, the average price of crude oil in India’s import basket exceeded $114 per barrel, 61% higher than the average cost in the previous fiscal year.

Meanwhile, gold imports also put pressure on the trade account. In April, gold imports amounted to $5.63 billion, further aggravating the outflow of foreign exchange. On the export side, April exports were $43.56 billion, up 13.8% year-on-year, but the increase was far less than the surge in imports, unable to offset the widening deficit.

Facing this situation, the government has already taken multiple measures. On one hand, it raised import duties on gold to curb consumption demand; on the other, Commerce Secretary Rajesh Agarwal said the government is actively communicating with industries to help exporters address current difficulties.

As the blockage of the Strait of Hormuz has not yet been lifted, the impact of high oil prices on India’s import costs is unlikely to subside in the short term. If oil prices remain high, the risk of further expansion of the trade deficit cannot be ignored, and the rupee as well as India’s overall external account will continue to come under pressure.

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