Why in news?
- Growing current account deficit.
- Surging imports and slowing exports will make the current account deficit rise.
- India’s merchandise trade deficit record high of 25.6 billion in June.
- The deficit was more than double the level observed last year.
- A trade deficit happens when the value of a country's imports exceeds the value of its exports with imports and exports referring both to physical goods and services.
- In simple terms, a trade deficit means a country is purchasing more goods and services than it is selling.
Measures to counter Trade deficit
- Increasing imports duty on gold
- Levying taxes and imposing restrictions on the export of petroleum.
- According to analysts, CAD is upwards of 3% of GDP up from 1.2% last year.
- This will add further pressure on Indan currency.
- On Tuesday rupee fell to a low of 79 against the dollar.
- Overall export grew under 17% in June in oil products, growth moderated sharply to 5.5%
- Weakness was observed in engineering products, drugs and pharmaceuticals, farms and plastics.
- Merchandise imports grew by 51% in June. Driven by the continuation of high commodity prices and healthy domestic products.
- Three commodities resulted in the hike of imports in June.
- Crude Oil
- Imports in gold rise by 170%, petroleum by 94%, and coal by 24%.
- Private consumption and investment remain lack lustre capacity of Central and state governments to direct growth is constrained by high debt burdens.
- Exports could provide much-needed stimulation to growth.
- A weaker currency could provide some tonic too but it might exert pressure on Trade Deficit.
- It must be pointed towards the fall of currency Ruppe against dollars but simultaneously has increased risen against other currencies as well.
- The policy of RBI is that it intervenes in currency markets only to smoothen out excess uncertainty.