Trade deficit widens to $21 bn again as imports climb 35%

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Trade deficit widens to $21 bn again as imports climb 35%

  • India’s merchandise exports rose 22.3% to $33.81 billion in February, while imports shot up 35% to surpass $55 billion, widening the trade deficit to $21.2 billion, as per preliminary foreign trade estimates.
  • February’s deficit was more than twice as wide as the pre-pandemic level of February 2020.
  • A rebound in oil and gold demand amid the waning of the third wave, along with rising global commodity prices fanned by escalating geopolitical tensions, boosted imports and bloated the merchandise trade deficit.
  • Merchandise deficit in March would be determined by the duration of the Russia-Ukraine conflict and the impact on commodity and crude oil prices.

Trade Deficit

  • A trade deficit occurs when the cost of a country's imports exceeds the cost of its exports.
  • The goods trade deficit indicates an increase in demand in the economy.
  • It is a part of the Current Account Deficit.

Significance of Trade Deficit

  • A trade deficit might signify one of two things:
  • Domestic producers are unable to meet demand in the domestic economy.
  • A deficit frequently indicates a domestic industry's lack of competitiveness.
  • A country's trade deficit is frequently caused by a mixture of both of these major factors.

Current Account Deficit

  • The current account records exports and imports in goods and services and transfer payments.
  • It is a component of a country's Balance of Payments (BOP), just as the capital account, and depicts a country's exchanges with the rest of the world.
  • If the value of goods and services imported exceeds the value of those exported, there is a current account deficit.

Major components of Current Account Deficit

  • Goods,
  • Services,
  • Net earnings on overseas investments (such as interests and dividend) and
  • Net transfer of payments over a period of time, such as remittances.

How Current Account Deficit is measured?

  • 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