Prelims Bits » India’s Trade Deficit

India’s Trade Deficit

Here's everything you need to know about the India’s Trade Deficit

Why in the News?

India’s trade deficit widened to a record $31.02 billion in July 2022.

Key Points:

About

Trade Deficit

  • Simply put, a Trade deficit is the gap between exports and imports.
  • It is a condition when money spent on imports exceeds that spent on exports, trade deficit occurs.
  • It can be calculated for various goods and services and also for transactions of international nature.
    • The exact opposite of trade deficit is trade surplus.

What widened India’s trade deficit?

  • Imports: One of the key causes of trade deficit is some goods such as crude oil are not being produced at the domestic level.
    • In that scenario, they have to be imported which imbalances the country’s trade.
  • A weak currency can also be a cause as it makes trade expensive.
  • Weakening global demand, which slows down exports.
  • Coal imports were another transaction that contributed to the import bill and the widening of the trade deficit this financial year.

Impact

  • If the trade deficit increases, a country’s GDP decreases. A higher trade deficit can decrease the local currency’s value.
  • More imports than exports impact the jobs market and lead to an increase in unemployment.
    • For Example, If more mobiles are imported and less produced locally, then there will be fewer local jobs in that sector.

What is Balance of trade (BOT)?

  • BOT indicates difference between the value of a country’s imports and exports for a given period and is the largest component of a nation’s Balance of Payments (BOP).
  • A country that imports more goods and services than it exports in terms of value has a trade deficit while a country that exports more goods and services than it imports has a trade surplus.