Why in News :
India’s overall trade deficit narrowed to $6.6 billion in May 2025, driven by lower oil prices and strong services exports, as total imports fell and non-petroleum exports recorded growth.
Description :
Definition: Trade Deficit
- A trade deficit occurs when the value of a country’s imports exceeds the value of its exports over a specific period.
Trade Deficit = Imports – Exports
If this value is positive, it indicates a deficit; if negative, it’s a surplus.
Static Concepts Related to Trade-Deficit:
- Current Account – Trade deficit falls under the Current Account of the Balance of Payments (BoP).
- Includes: Trade in goods, services, primary income, and secondary income (remittances).
- Capital Account – Reflects capital inflows (like FDI, FPI) which help finance the current account deficit.
- Twin Deficit Hypothesis – Suggests that a fiscal deficit (budgetary) can lead to a trade/current account deficit.
- Devaluation/Depreciation of Currency – A trade deficit may cause the domestic currency to depreciate, making exports cheaper and imports costlier.
- Impact on Economy – A moderate trade deficit is manageable if matched by strong capital inflows; a persistent and rising deficit may lead to a BoP crisis.
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