What is a ‘Trade Deficit’? Difference between Balance of Payment (BOP) and Balance of Trade (BOT)

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What is a ‘Trade Deficit’?

  • A trade deficit is an economic measure of international trade in which a country’s imports exceeds its exports.
  • A trade deficit represents an outflow of domestic currency to foreign markets.
  • It is also referred to as a negative balance of trade (BOT).
  • Trade Deficit = Total Value of Imports – Total Value of Exports

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Trade Data

  • The trade data was released by Ministry of Commerce and Industry
  • Imports during July- $43.8 billion (a growth of 28.8% compared to the last year period).
  • Exports during July- $25.8 billion (a growth of 25.8% compared to the last year period).
  • The sharp surge in imports led to worsening of trade deficit to $18 billion in the reporting month as against a deficit of $11.5 billion during July 2017.

 

Reasons for high trade deficit

  • In recent years there is an increase in imports of petroleum, crude & products, electronic goods, machinery, electrical & non-electrical, pearls, precious & semi-precious stones and coal, coke & briquettes among others.
  • The global brent price ($/bbl) has increased by 53.2% in July 2018 vis-à-vis July 2017 leading to over 57% increase in oil import bill ($12.4 billion) and also 41% jump in gold imports to $2.9 billion during July are believed to be main reasons behind high trade deficit.

Difference between Balance of Payment (BOP) and Balance of Trade (BOT)

Basis for Comparison Balance of Trade Balance of Payment
Meaning Balance of Trade is a statement that captures the country’s export and import of goods with the remaining world. Balance of Payment is a statement that keeps track of all economic transactions done by the country with the remaining world.
Records Transactions related to goods only. Transactions related to both goods and services are recorded.
Capital Transfers Are not included in the Balance of Trade. Are included in Balance of Payment.
Which is better? It gives a partial view of the country’s economic status. It gives a clear view of the economic position of the country.
Result It can be Favorable, Unfavorable or balanced. Both the receipts and payment sides tallies.
Component It is a component of Current Account of Balance of Payment. Current Account and Capital Account.

 

 

 

 

Section : Economics