Context
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India’s trade deficit has widened to a record $31.02 billion in July thanks 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 trade deficit?
- Simply put, 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, the deficit occurs.
Source: The Economic Times - It can be calculated for different goods and services and also for international transactions. The opposite of trade deficit is trade surplus.
What causes it?
- 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 it bad for a country’s economy?
- If the deficit increases, a country’s GDP decreases. A higher trade deficit can decrease the local currency’s value.
- More imports than exports, according to economists, impact the jobs market and lead to an increase in unemployment. If more mobiles are imported and less produced locally, then there will be less local jobs in that sector.
Reference: IE
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