Trade Deficit occurs when the amount spent for imports exceeds the value of exports of a country. So, here’s what to wonder- is it good for a country’s economy? Or is it a hindrance for the economic upturn of the nation? Well, the answer is quite ambiguous.
Majority of the researches believe that if the imports surpass the exports, the country would hang by the thread regarding pecuniary matters. More like a symptom for the problem! This is because, the country will have a current deficit account, wherein the cash out flow will be more than the cash inflow. As a result, the nation will reach a stage where it has to sell its long- term assets in order to borrow money to finance current consumption. Long term borrowings do not sound like a long-lasting strategy.
And also, few economists believe that there are perks from the import boom. This is because of the increased level of Foreign Direct investments and consumers get to enjoy international products.
An ideal example for the Trade Deficit is India. The country has crossed the $60 million level four times since 2010. In 2022, it crossed $30 billion since the petroleum prices reached the pinnacle. Certain parameters such as the government’s intervention to control exports of petroleum products and a surge in inflation contributed towards the widening of the trade deficit. Earnings from petroleum product exports declined by $2.4 billion in July from $7.83 billion in June 2022. The quantity fell after the government, imposed tax on exports of petrol and diesel, global prices got relieved amidst the concern regarding the economic growth in the US and China. In a nutshell, the trade deficit has been a concerning aspect and the probability of transforming into a pernicious factor that causes hindrance to the economic ladder, is high. Therefore, it is advised to medicate this problem with a solution before the situation exacerbates.