Exports Dipped Again in November, but Trade Deficit eases to 31% from Record High

Syllabus:  GS-III, Economy;

Subject: Economy;

Topic: External sector, Balance of Payments:

Issue: Balance of Payments;

Context:  India’s goods exports slipped back into contraction to drop 2.83% in November to $33.9 billion, while imports fell by a sharper 4.33% to $54.48 billion.

Synopsis:

• Weak Exports: Exports had recorded only their second uptick this year in October, and though the value of outbound shipments was up 1.1% on a month-on-month basis, they still marked the second-weakest level since November 2022.
• Easing Trade deficit: The trade deficit for November eased sharply beyond expectations to $20.58 billion from the all-time high of $29.91 billion recorded in October.
• Low merchandise exports: April and November 2023, merchandise exports from India are now 5% down at $278.8 billion, while imports have dropped 8.7% to $445.15 billion.
  • At $166.35 billion, the trade deficit so far this fiscal is 12.1% below the same period last year when several commodity prices had shot up after the conflict in Ukraine.

Balance of Payments:

• Balance of Payment (BoP) of a country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year.
• Components of BoP: For preparing BoP accounts, economic transactions between a country and rest of the world are grouped under – Current account, Capital account and Financial Account and Errors and Omissions.
• It also shows changes in Foreign Exchange Reserves.

Trade deficit:

• A trade deficit is an amount by which the cost of a country’s imports exceeds its exports.
• It’s one way of measuring international trade, and it’s also called a negative balance of trade.
• A trade deficit can be calculated by subtracting the total value of a country’s exports from the total value of its imports.

Current Account Deficit:

• The current account records exports and imports in goods and services and transfer payments. It represents a country’s transactions with the rest of the world.
• There is a deficit in Current Account if the value of the goods and services imported exceeds the value of those exported.

Major components are:

• 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.

It is measured as a percentage of Gross Domestic Product (GDP). The formulae for calculating Current Account Balance:

• Current Account Balance = Trade gap + Net current transfers + Net income abroad.
• Trade gap = Exports – Imports.