Gold imports account for half of India's $10 billion trade deficit surge: here's why

India's merchandise trade deficit widened by $10 billion month-on-month to $40 billion in October 2026, with gold imports emerging as the biggest contributor to the increase, according to a report by Axis Bank Economic Research.

The November 13 report, titled India's US$40Bn deficit largely seasonal; INR pressure contained, said approximately $5 billion, or 50%, of the increase in the merchandise trade deficit was attributable to a higher gold deficit.

The surge reflects a delayed pickup in festive-season demand, although gold imports remained below historical seasonal trends.

Why did gold imports increase?

Gold purchases typically rise during India's festive and wedding seasons, when demand for jewellery and investment products strengthens.

According to Axis Bank, October witnessed a late recovery in gold imports, contributing significantly to the widening trade gap.

However, the report suggests that the increase should be viewed in the context of seasonal consumption patterns rather than as evidence of a sustained deterioration in India's external trade position.

International gold prices also influence the import bill. Higher prices can increase the dollar value of imports even without a proportionate rise in physical quantities.

The bank's analysis indicates that the October increase was primarily associated with festive demand, while import volumes remained below their historical seasonal pattern.

What happened to India's overall trade balance?

Apart from gold, India's oil and non-oil, non-gold trade deficits also widened during October.

However, exports recorded strong growth of 45% year-on-year, supported by petroleum products, engineering goods and electronics.

Meanwhile, non-oil, non-gold imports increased 33% annually, driven by electronics, machinery and edible oils.

Axis Bank noted that India's combined September-October merchandise deficit translated into an annualised $391 billion, reflecting the seasonal concentration of imports.

Will higher gold imports pressure the rupee?

A widening merchandise trade deficit can increase demand for foreign currency because importers generally need dollars to settle overseas purchases.

However, Axis Bank believes India's external position remains relatively resilient.

The bank expects the current account deficit to remain around 1% of GDP in FY27, supported by strong services earnings and net transfers.

India's services surplus reached approximately $226 billion on a trailing 12-month basis, while the broader invisibles surplus stood at $332 billion.

Easing crude oil prices and renewed foreign portfolio inflows in November have also helped contain pressure on the rupee.

For consumers and investors, the findings highlight how festive gold demand can temporarily influence India's import bill without necessarily signalling a prolonged external-sector imbalance.

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