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Rise in Trade Deficit by $17.13 billion
Why is it in the news?
- As per the data from Trade Ministry, India’s October trade deficit widened to $17.13 billion due to a higher oil import bill.
- In September, the trade deficit was at $13.98 billion.
More in the news
- Exports in October 2018 were $26.98 billion, as compared to $22.89 billion in October 2017.
- Imports during the month increased by 17.62% to $44.11 billion, against the same month last year.
- India, the world’s third-biggest crude importer, buys over 80% of its oil needs from overseas markets.
- Oil importsin October totalled $14.21 billion, up 52.64% from a year earlier.
Concept
- A trade deficit is when a country imports more than it exports. It is also called a negative balance of trade.
- 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.
- Alternatively, a deficit means that a country’s consumers are wealthy enough to purchase more goods than the country produces.
- It is a common phenomenon in developing countries.
- Pros:
- A trade deficit is not necessarily detrimental because it often corrects itself over time.
- An increase in imported goods from other countries decreases the price of consumer goods in the nation as foreign competition increases.
- The lower prices help to reduce the threat of inflation in the local economy.
Cons:
- However, the trade deficit should not be beyond the absorption capacity of a country.
- As long as the country is importing for domestic growth and investment rather than only consumption, a deficit is fine.
- In the long run, however, a trade deficit may lead to the creation of fewer jobs.
- If the country is importing more goods from foreign companies, prices will go down, and domestic companies may be unable to produce and compete at the lower prices.
Source
The Hindu, Investopedia.