According to news reports, India's trade deficit has widened to a four month high. Exports increased by 1% but imports rose by 10.25%. The imports increased due to increase in gold import levels. It shows that there is an increase in gold demand in the country. The increase in exports was due to growth in electronic, chemical, petroleum products and pharmaceutical sectors as per Business Line article.
Now the question is, whether this increase in trade deficit is necessarily a limitation for Indian Economy?
The answer is no. For a developing nation it is very obvious to have a trade deficit. But however increase in trade deficit shows that domestic companies are unable to perform better in international markets.
But in India's case, the exports from domestic companies also rose by 1%. But the imports rose mainly due to gold and crude oil imports. Hence, we cannot say that Indian companies are underperforming.
However, due to widening of trade deficit the Indian currency might have a pressure in forex.
Post a Comment