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:
- What is trade deficit?
- 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
