India’s Trade Deficit

Trade deficit is usually referred as the negative balance of trade which occurs when the value of goods being imported from the foreign countries exceeds the value of goods being exported to the foreign countries. It represents the excess of imports over the exports of a nation.

Whenever a country finds itself with a negative balance of trade, it begins to lose its investors. What happens actually, with a rise in imports, spending on domestic products reduces, affecting adversely the domestic producers and stock prices and so the investors no more finds the investment opportunities attractive here and begins to invest in foreign markets. As a result, domestic country loses investors causing a failure in the domestic market.

Due to a persistent growth in the imports, particularly of gold, silver and crude oil in India, there has been a prolonged trade deficit since 1980. The trade deficit found to be an all time high in March of 1977 and marked a record low in October of 2012. Now the time has come when India has noticed a ten months low in the trade deficit in December, 2014.

There has been a decline in the trade deficit to $9.43 billion in December, 2014 in contrast to the trade deficit of $10.2 billion in the corresponding month of the last year. There has been a subsequent change in the values of exports and imports over this period. The month of December noticed a decline in the exports by 3.77% and a contraction in the imports by 4.78%. Oil imports were found to be reduced by 28.6%; a particular reason for this might be fall in oil prices. Gold imports showed an increase in contrast to the value of gold imports in the corresponding month of the last year but a decline from the previous month, November.

Reduction in exports was a result of the global downturn in demand. As the value of exports has declined, a huge amount of effort is required on the part of government to reach the export target of $340 billion at the end of 2014/15 fiscal period.

As the fall in the value of imports was greater than the fall in the value of exports, the country experienced a decline in the trade deficit.

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