India’s trade deficit surges to over $31 bn – what is trade deficit, is it bad?

Source: The post is based on the article “India’s trade deficit surges to over $31 bn – what is trade deficit, is it bad?” published in Indian Express on 3rd August 2022.

What is the News?

India’s trade deficit widened to a record $31.02 billion in July due to contracting merchandise exports and a rise in imports. This is a three-times increase from the $10.63 billion trade deficit reported in July last year.

What is the trade deficit?

Simply put, a Trade Deficit or negative balance of trade(BOT) is the gap between exports and imports. 

When money spent on imports exceeds that spent on exports in a country, a trade deficit occurs. The opposite of a trade deficit is trade surplus.

What causes a trade deficit?

There are multiple factors that can be responsible. One of them is some goods not being produced domestically. In that case, they have to be imported. This leads to an imbalance in their trade.

A weak currency can also be a cause as it makes trade expensive.

Is a trade deficit bad for a country’s economy?

Firstly, it can decrease a country’s GDP.

Secondly, it can decrease the local currency’s value.

Thirdly, it can impact the job market and lead to an increase in unemployment. For instance, if more mobiles are imported and less produced locally, then there will be fewer local jobs in that sector.