The country's trade deficit has widened to hit a record four-month high of $14.62 billion during the month of May 2018. The reason behind the surge in the trade deficit is mainly attributed to the rise in the imports to the tune of 15%.
Suresh Prabhu, the Union Minister of Commerce and Industry in the central government pointed out that the exports during the month of May expanded by 28.18% and stood at US$ 28.86 billion while the imports were up by 14.85% and settled at US$ 43.48 billion.
Currently, India's trade deficit has increased to $14.62 billion from the previously recorded $13.84 billion in May 2017.
The surge in the global crude oil prices has led to the upsurged oil import bill to the tune of $11.5 billion, up by 49.46%. India mainly depends on oil imports for domestic requirements. India depends on oil imports up to 80% to meet its domestic requirements.
What is Trade Deficit?
The term trade deficit refers to an economic measure of an international trade in which a country's imports from other countries exceeds its exports. It represents an increased outflow of domestic currency to foreign markets. It is also known as the negative balance of trade.
Increased trade deficits are likely to have an adverse effect on the economy of the country. If a country imports more goods than its exports over a period of time, the country will definitely land itself in debt. The investors will also notice the declining trend in spending on domestic goods, which will likely impact the domestic companies and their stock prices.
Impact of Trade Deficit on Indian Economy
The increased trade deficit will affect the stability of the country and there will be a decline in the employment rate. If the imports from foreign countries are more then the demand for exports, domestic jobs will decline in the home country.
The currency value will also take a hit due to the trade deficit. The demand for a country's exports impacts its respective currency value. For example: Indian companies which are selling their goods abroad has to convert those foreign currencies back into Indian rupee to pay for the suppliers, employees and so on. As the demand for exports falls against imports, the value of the rupee declines.
Apart from this the trade deficits also affects the country's interest rates and foreign direct investments.