TRADE DEFICIT SIMPLIFIER WHAT IS A TRADE DEFICIT?

Jun 01, 2024

TRADE DEFICIT SIMPLIFIER WHAT IS A TRADE DEFICIT?

A trade deficit occurs when a country's imports exceed its exports. This means the country is buying more goods and services from other countries than it is selling to them.

WHY DOES INDIA HAVE A TRADE DEFICIT WITH NINE OF ITS TOP TEN TRADING PARTNERS?

India's trade deficit with countries like China, Russia, Singapore, and Korea is due to high import volumes of raw materials, machinery, electronics, and oil, which are essential for its economy. Despite efforts to boost exports, the value of imports continues to outstrip exports.

HOW DOES A TRADE DEFICIT IMPACT THE ECONOMY?

Currency Depreciation: A higher trade deficit can lead to the depreciation of the domestic currency as more foreign currency is needed for imports.

Import Costs: Depreciation makes imports more expensive, potentially worsening the deficit.

Economic Pressure: A persistent trade deficit may indicate underlying economic issues, such as lack of competitiveness in certain sectors.

WHAT MEASURES CAN BE TAKEN TO MANAGE A TRADE DEFICIT?

Boosting Exports: Enhancing the competitiveness of domestic industries to increase exports.

Import Substitution: Developing domestic industries to produce goods that are currently imported.

Trade Agreements: Negotiating favorable trade agreements to open new markets for exports.

Currency Management: Implementing policies to stabilize the currency and manage the impact of exchange rate fluctuations.

TRADE DEFICIT TABLE

TRADE DEFICIT WITH TOP TRADING PARTNERS IN 2023-24

Trading Partner	Trade Deficit (2023-24)	Trade Deficit (2022-23)
China	$85 billion	$83.2 billion
Russia	$57.2 billion	$43 billion
Korea	$14.71 billion	$14.57 billion
Hong Kong	$12.2 billion	$8.38 billion