UPSC Express

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)