India’s Trade Deficit

Why in the News?

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.