{"id":204053,"date":"2022-09-08T15:44:35","date_gmt":"2022-09-08T10:14:35","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=204053"},"modified":"2022-09-08T15:44:35","modified_gmt":"2022-09-08T10:14:35","slug":"policy-balance-higher-trade-and-fiscal-deficits-can-create-risks","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/policy-balance-higher-trade-and-fiscal-deficits-can-create-risks\/","title":{"rendered":"Policy balance: Higher trade and fiscal deficits can create risks"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article \u201cPolicy balance: Higher trade and fiscal deficits can create risks<\/strong>\u201d<\/strong> published in <\/span>the Business Standard <\/strong>on\u00a0<\/span>8th<\/sup>\u00a0September 2022<\/strong>.<\/span><\/p>\n

Syllabus<\/strong>: GS 3 \u2013 Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.<\/p>\n

Relevance<\/strong>: falling exports and rising imports.<\/p>\n

News<\/strong>: Recent data shows India\u2019s exports declined marginally in August on a year-on-year basis, while it contracted by about 9% sequentially. Indian exporters have also reported a shift in demand for low-value products.<\/p>\n

What are the reasons for the falling exports and rising imports?<\/h5>\n

Falling Exports<\/strong>: a)<\/strong> Global economy is slowing rapidly, which is affecting demand, b)<\/strong> Higher energy prices are upsetting household budgets in many parts of the world, compressing demand for other goods, c)<\/strong> Higher interest rates and tightening financial conditions, particularly in the US Federal Reserve, has also affecting exports from India.<\/p>\n

Rising imports<\/strong>: a)<\/strong> Imports have remained sticky, partly because of higher crude oil prices, b)<\/strong> The ongoing recovery in the Indian economy is also pushing up demand for foreign goods.<\/p>\n

What are the impacts on the Indian economy due to falling exports and rising imports?<\/h5>\n

All this resulted in a widening trade deficit and current account deficit (CAD)<\/strong>in India. Most economists expect the current account deficit (CAD) forecasts for the year to 3.5 to 4% of gross domestic product compared to 1.2% in the last fiscal year.<\/p>\n

What are the opportunities for the Indian economy?<\/h5>\n

A rise in Foreign portfolio investors (FPIs)<\/strong>: FPIs have returned to Indian capital markets after aggressive selling in recent months. But, their participation is anchored on global conditions.<\/p>\n

This is because, a)<\/strong> Sustained rate hikes by large central banks and tightening financial conditions affected FPI flows to risky assets, such as emerging market equities.<\/p>\n

Reduction in commodity prices<\/strong>: Slower global growth could soften commodity prices.<\/p>\n

What are the challenges for the Indian economy?<\/h5>\n

Geopolitical factors and rising energy prices<\/strong>: Sustained disruption in gas supply from Russia could again push up energy prices.<\/p>\n

Higher \u201ctwin deficits\u201d<\/strong>: The government at present have a higher fiscal deficit. Along with the CAD, higher \u201ctwin deficits\u201d are always a risk for macro stability. This makes the financing of CAD more difficult.<\/p>\n

What should be done to avoid the twin deficits?<\/h5>\n

The government should use the buoyancy in tax collection to improve the fiscal position, and the RBI can focus on CAD.<\/p>\n

Visible adjustments in both fiscal and current account positions will help strengthen macroeconomic stability, support economic activity, and boost investor confidence.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article \u201cPolicy balance: Higher trade and fiscal deficits can create risks\u201d published in the Business Standard on\u00a08th\u00a0September 2022. Syllabus: GS 3 \u2013 Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. Relevance: falling exports and rising imports. News: Recent data shows India\u2019s exports… Continue reading Policy balance: Higher trade and fiscal deficits can create risks<\/span><\/a><\/p>\n","protected":false},"author":10311,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,216],"class_list":["post-204053","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704857095},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/204053","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10311"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=204053"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/204053\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=204053"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=204053"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=204053"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}