Important. The changing trends in India’s import and export sector need to be analysed.
From UPSC’s perspective, the following things are important:
Prelims Level: What is trade deficit, BoP and other related terms.
Mains level: Well Even though 1 month data is not much relevant for mains but you need to track this news as if this trend continuous in long run this could effect India’s external sector stability which then becomes an important topic for mains.
- The country’s goods trade deficit in April, the first month of FY’18, widened to $13.2 billion — the highest since the $16.2 billion clocked in November 2014, data released on Monday by the Commerce Ministry showed
Why this happened?
- This was due to goods imports in April recording a historic 49.07% year-on-year growth to $37.9 billion — following a surge in gold, oil, coal, chemicals, pearls and precious stones, machinery, transport equipment and electronics imports
- and outpacing exports despite shipments rising for the eighth consecutive month
Stats: (The figures need not be remembered, but note the share of various commodities in import and exports)
- In India, gold imports continued to surge when it jumped 211.35% in April to $3.8 billion
- Oil imports in April rose 30.12% to $7.3 billion
- In this connection, it is mentioned that the global Brent prices ($/bbl) have increased by 25.4% in April 2017 vis-à-vis April 2016 as per World Bank commodity price data(The pink sheet)
- On the exports side, petroleum products shipments rose 49% to $2.94 billion while readymade garments exports increased 31.7% to $1.7 billion
- Exports of engineering goods went up 28.2% to $6.1 billion, while chemicals increased 24% to $1.29 billion and gems and jewellery exports rose 15% to $3.97 billion
- Increase in imports of oil and pearls and precious/semi-precious stones augur well for exports of petroleum products and gems and jewellery respectively as such imports are inputs for the exports.
A trade deficit is when a country imports more than it exports. It is also called a negative balance of trade. It is one way of measuring international trade. To calculate the trade deficit, subtract the total value of exports from the total value of imports.
What Causes a Trade Deficit?
A trade deficit occurs when a country does not produce all it needs. Most nations must borrow from foreign states to pay for the imports.Therefore, a country with a trade deficit will also have a current account deficit.
A trade deficit also results when domestic companies manufacture in foreign countries. When raw materials are shipped overseas to factories, they count as exports. When the finished goods are shipped back home, they count as imports. That’s true even though they’re made by domestic companies. The imports are subtracted from the country’s gross domestic product. That’s despite the fact the earnings benefit the company’s stock price and the taxes increase the country’s revenue stream.
Effects of a Trade Deficit (Hint: It’s not always bad)
Initially, a trade deficit is not a bad thing. It raises a country’s standard of living. Its residents have access to a wider variety of goods and services for a more competitive price. It reduces the threat of inflation, since it creates lower prices. A trade deficit indicates that the country’s residents are feeling confident and wealthy enough to buy more than the country produces.
Over time, a trade deficit creates jobs outsourcing. As a country imports certain goods rather than buying domestically, the local companies start to go out of business. The domestic industry will lose the expertise needed to remain competitive. As a result, the home country creates fewer jobs in that industry.
Instead, the foreign companies hire new workers to keep up with the demand for their exports.