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India’s merchandise trade deficit widened sharply to $34.68 billion in January, driven largely by a steep jump in gold and silver imports, government data released on Monday showed. The gap between exports and imports came in far above economists’ expectations, marking one of the widest monthly trade deficits in recent months and highlighting the pressure rising imports continue to place on India’s external balance.

The January figures also come at a crucial time for India’s trade outlook, as the month reflects the final impact of steep US tariffs on Indian exports before New Delhi and Washington move closer to signing a proposed interim trade agreement in March.

Economists had forecast India’s January trade deficit at around $26 billion, but the actual number surprised sharply on the higher side. The deficit expanded from $25.04 billion in December, underscoring the impact of surging inbound shipments.

India’s exports declined to $36.56 billion in January, down from $38.51 billion in December. Imports, meanwhile, climbed strongly to $71.24 billion, compared with $63.55 billion in December, with bullion purchases emerging as the biggest driver behind the jump.

Officials and market sources pointed to a sharp rise in gold and silver shipments as a key factor behind January’s widening deficit.

India imports large amounts of gold every year, with demand often rising ahead of weddings and festivals. The downside is that higher bullion shipments can sharply increase the import bill. The latest data suggests that precious metal inflows played a disproportionate role in January’s trade imbalance.

The January trade numbers also carry added significance as they represent the final month heavily affected by the earlier 50 per cent tariff rate imposed by the United States on Indian goods.

US President Donald Trump announced earlier this month that tariffs on Indian exports would be reduced to 18 per cent, easing concerns among exporters and policymakers.

The effective tariff rate has already fallen to 25 per cent, and is expected to ease further once the proposed India–US trade agreement is signed in March. Negotiations are currently progressing under an interim framework.

Washington had earlier imposed punitive tariffs linked to India’s imports of Russian crude oil, which had weighed on labour-intensive export sectors.

As part of the evolving trade arrangement with the US, India has reportedly agreed to cut Russian oil purchases and intends to more than double annual imports of American goods.

A separate deal with the European Union, likely to kick in within a year, could boost India’s export prospects further. Despite the sharp monthly deficit, Commerce Secretary Rajesh Agrawal maintained that India’s overall export trajectory remains positive.

He said exports during the April–January period of the current fiscal year rose 2.22 per cent to $366.63 billion, and expressed confidence that total goods and services exports could cross $860 billion for the full year.

Exports in the current fiscal year remain in positive territory, providing some relief despite the sharp January widening.

A rising trade deficit can put pressure on the rupee and strain the current account if import demand stays strong.

Economists, however, believe trade numbers could stabilise as tariff rates ease and India’s new trade partnerships begin to boost exports.