Imports are increasing due to high levels of consumption.

India is currently facing a major issue with its trade, specifically with its imports from Switzerland. This has caused a gold loop, where Swiss refineries and Indian consumers are weakening the Indian rupee. This is a serious problem as it threatens the country's macroeconomic stability. The recently approved India-EFTA Trade and Economic Partnership Agreement aimed to strengthen trade and investment ties with Switzerland, but the irony is that India's exports to Switzerland are still insignificant.

In fact, the trade imbalance between the two countries is quite severe, with India exporting only $1.51 billion worth of goods to Switzerland while importing $22.4 billion. This has resulted in one of the most lopsided bilateral trade deficits for India, mainly due to the overwhelming amount of gold being imported from Switzerland. Although trade with Switzerland has been growing at a modest rate of 4.62%, the structure of this trade remains heavily skewed, with a high-value and high-dependency import pattern and minimal presence of Indian goods in Swiss markets.

This trade imbalance is not only a statistical challenge but also has a significant impact on the country's macroeconomic stability. The continuous surge of imports, particularly of crude oil, gold, electronics, chemicals, and other high-value goods, has led to a higher demand for dollars, causing the rupee to weaken and the current account deficit to widen. This, in turn, affects investor sentiment and has a negative impact on foreign direct investment.

Additionally, the depreciation of the rupee sets off a cycle where a weaker rupee makes imports more expensive, leading to inflationary pressures and making it difficult for both the government and businesses to service their dollar-denominated loans. This highlights the urgent need to address the unchecked rise in non-essential imports, which are becoming economically unsustainable. India's consumption of items such as gold, luxury goods, and premium food products is primarily driven by affluent urban households, but the entire economy bears the burden of this trend.

One of the most striking issues is the policy inconsistency regarding gold. Despite being a major drain on foreign exchange, the latest round of selective duty hikes excluded gold, much to the relief of the India Bullion and Jewellers Association. This is likely due to the significant historical roots of the bullion trade in the Gujarati business community, with major refiners like the Gujarat Bullion Refinery playing a central role. Switzerland, known as the world's gold-refining hub, remains the main supplier of gold to India. As long as gold imports continue unchecked, the country's current account deficit will remain under pressure.

It is crucial for the government to address this issue with a sense of urgency. A clear and assertive policy framework is needed to link non-essential imports to export performance and ensure that domestic consumption patterns do not harm macroeconomic stability. This should include a phased strategy to enhance export manufacturing, improve competitiveness, and shift the export composition towards high-value sectors.

However, this is not just a short-term problem, but a long-standing structural issue. India's export base is narrow and heavily reliant on low-value goods such as pharmaceuticals, textiles, petrochemicals, and agricultural products. On the other hand, its import appetite for electronics, gold, and capital goods continues to surpass its domestic production capabilities. Without targeted and deliberate action, this gap will only widen, making the country more dependent on external financing.

India's economic growth is still a compelling story, but it cannot solely rely on GDP numbers. It is essential to tackle the issue of consumption-driven imports and align trade strategies with long-term economic priorities to prevent further strain on the rupee, debt profile, and external stability of the country.

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