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
- 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