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India’s Trade Deficit

Context:

India’s trade deficit has widened to a record $31.02 billion in July thanks to contracting merchandise exports and a rise in imports. This is a three-times increase from the $10.63 billion trade deficit reported in July last year.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

  1. What is trade deficit?
  2. Is it bad for a country’s economy?

What is trade deficit?

  • Trade deficit or negative balance of trade (BOT) is the gap between exports and imports.
    • When money spent on imports exceeds that spent on exports in a country, trade deficit occurs.
  • It can be calculated for different goods and services and also for international transactions.
  • The opposite of trade deficit is trade surplus.
What causes it?
  • There are multiple factors that can be responsible.
  • One of them is some goods not being produced domestically.
    • In that case, they have to be imported. This leads to an imbalance in their trade.
  • A weak currency can also be a cause as it makes trade expensive.

Is it bad for a country’s economy?

  • If trade deficit increases, a country’s GDP decreases.
  • A higher trade deficit can decrease the local currency’s value.
  • More imports than exports, according to  economists, impact the jobs market and lead to an increase in unemployment.
  • If more mobiles are imported and less produced locally, then there will be less local jobs in that sector.

-Source: Indian Express


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