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India’s Merchandise Trade Deficit

India’s Merchandise Trade Deficit

Why in news?

  • Preliminary data released by the government showed that India’s trade deficit in goods widened to USD 14.11 billion in March 2021 from USD 9.98 billion during March 2020.

Other Observations

  • Merchandise Exports: India’s merchandise exports in March 2021 were USD 34.0 billion as compared to USD 21.49 billion in March 2020, an increase of 58.23%.
  • For the first time ever in a month, Indian exports crossed USD 34 billion in March 2021.
  • Merchandise Imports: India’s merchandise imports were USD 48.12 billion as compared to USD 31.47 billion in March 2020, an increase of 52.89%.
  • India is thus a net importer in March 2021, with a trade deficit of USD 14.11 billion.

Reasons for Increased Imports

  • Oil import has increased due to opening up of the transportation sector.
  • Relaxation in lockdown policy and start of economic activities are the main reasons for increase in demand for the goods and the import.
  • Also the rise in global trade has made the global supply chain active and the commerce is taking place.

What Is Trade Deficit?

  • Simply put, the trade “balance” of a country shows the difference between what it earns from its exports and what it pays for its imports.
  • If this number is in negative – that is, the total value of goods imported by a country is more than the total value of goods exported by that country – then it is referred to as a “trade deficit”.
  • If India has a trade deficit with China then China would necessarily have a “trade surplus” with India.
  • The trade deficit in goods shows a rise of demand in the economy.
  • It is a part of the Current Account Deficit.

What is Current Account Deficit?

  • The current account records exports and imports in goods and services and transfer payments. It represents a country’s transactions with the rest of the world and, like the capital account, is a component of a country’s Balance of Payments (BOP).
  • There is a deficit in Current Account if the value of the goods and services imported exceeds the value of those exported.
  • Major components are:
    • Goods,
    • Services, and
    • Net earnings on overseas investments (such as interests and dividend) and net transfer of payments over a period of time, such as remittances.
  • It is measured as a percentage of Gross Domestic Product (GDP). The formulae for calculating Current Account Balance is:
    • Current Account Balance = Trade gap + Net current transfers + Net income abroad.
    • Trade gap = Exports – Imports

Imports of India (facts)

  • Top Import Items: Crude petroleum, gold, petroleum products, coal, coke & briquettes constitute top import items.
  • India’s service exports are more than its service imports. This means that India has a net service surplus.
  • However, India’s net services surplus has been steadily declining in relation to GDP.
  • Now, India’s service surplus finance about 50 per cent of the merchandise deficit (the trade balance).

Top 10 Import Commodities

  • Petroleum: Crude
  • Gold
  • Petroleum Products
  • Coal, Coke and Briquettes, etc.
  • Pearl, Precious, Semiprecious Stones
  • Electronic Components
  • Telecom Instruments
  • Organic Chemicals
  • Industrial Machinery for Dairy etc.
  • Iron and Steel

Top 10 Countries from which India imports the most

  • China PRP
  • USA
  • UAE
  • Saudi Arabia
  • Iraq
  • Switzerland
  • Hong Kong
  • Korea RP
  • Singapore
  • Indonesia


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