Login With Google
Trade deficit hits 62-month high in July
Why in the news ?
- As per the official data released, India’s trade deficit widened to a more than five year high of $18.02 billion in July, driven largely by a surge in oil imports.
Details
- Though merchandise exports rose 14.3% year-on-year in July, the trade deficit widened as oil imports surged 57.4% to $12.35 billion.
- In June, the trade deficit stood at $16.6 billion.
- Merchandise exports last month rose to $25.77 billion from a year earlier, while imports rose 28.8% to $43.79 billion.
- Growing trade imbalance would worsen current account deficit (CAD).
- Already, the rupee’s depreciation has raised fears of costlier imports while the country’s ability to take advantage of a weak currency to improve exports remains limited.
- Given the structural problems being faced by exporters (high costs of logistics, raw material and wages etc), limit the country’s ability to benefit much in the short term.
- Although it’s too early to gauge the impact of a sharp hike in minimum support prices (MSPs) of some crops such as cotton on exports of agri and allied sector items, higher raw material prices will further dent India’s competitiveness.
Current Account Deficit (CAD)
- The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods and services it exports.
- The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account.
- The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments.
- While a current account deficit can imply that a country is spending “beyond its means," having a current account deficit is not inherently disadvantageous. If a country uses external debt to finance investments that have a higher return than the interest rate on the debt, it can remain solvent while running a current account deficit.
Source
The Hindu, Indian Express