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