- Definition: A trade deficit occurs when a country’s imports exceed exports in value. For India, this reflects dependence on foreign goods (e.g., oil, electronics, machinery) and limited export competitiveness in key sectors.
- FY 2023–24 Snapshot:
- Total Trade Deficit: ~240billion(upfrom122 billion in 2020–21).
- Exports: $437 billion (growth slowed due to global demand slump).
- Imports: $677 billion (driven by oil, gold, and electronics).
Key Trends in India’s Trade Deficit
1. Top Trading Partners (Deficit vs. Surplus)
| Trade Deficit Partners (Descending Order) | Trade Surplus Partners |
|---|---|
| China ($85 billion deficit in 2023–24) | USA ($36 billion surplus) |
| Russia ($57 billion deficit) | Netherlands ($17 billion) |
| South Korea (~$15 billion deficit) | UK ($12 billion) |
| Hong Kong ($10 billion deficit) | Belgium ($8 billion) |
| Saudi Arabia (deficit narrowed to $5 billion) | Italy ($6 billion) |
2. Shifts in Trade Deficit (2022–23 vs. 2023–24)
- Deficit Increased With:
- China: Due to imports of electronics, machinery, and APIs (Active Pharmaceutical Ingredients).
- Russia: Surge in discounted crude oil imports post-Ukraine war (Russia became India’s 2nd-largest oil supplier).
- South Korea & Hong Kong: Imports of semiconductors and tech components.
- Deficit Narrowed With:
- UAE (due to CEPA 2022 boosting Indian exports like gems, textiles).
- Saudi Arabia (reduced oil prices and diversified imports).
- Indonesia & Iraq (lower palm oil and crude oil imports).
Impact of Higher Trade Deficit on Economy
- Forex Reserves Depletion:
- India spent 13billionin2023–24tostabilizetherupee(forexreservesat 616 billion as of June 2024).
- Risks of rupee depreciation (inflationary pressure on imports like oil).
- Current Account Deficit (CAD):
- CAD widened to 1.8% of GDP in 2023–24 (up from 0.2% in 2020–21).
- Risks: Lower sovereign credit ratings (Moody’s, S&P), higher borrowing costs for govt/companies.
- Strategic Vulnerabilities:
- Over-reliance on China for electronics, APIs, and Russia for energy.
- Example: 70% of India’s electronic components imported from China.
- Silver Linings:
- Capital Goods Imports: Machinery/tech imports can boost domestic productivity (e.g., renewable energy infrastructure).
- Consumer Goods Access: Wider choices for Indian consumers.
Government Measures to Address Trade Deficit
- Export Promotion:
- Production-Linked Incentive (PLI) Scheme: Boosting electronics, pharma, and solar panel manufacturing.
- FTAs with UAE, Australia, UK (proposed): Tariff concessions for Indian exports.
- Import Substitution:
- Atmanirbhar Bharat: Focus on reducing dependency on critical imports (e.g., defense equipment, semiconductors).
- Coal Imports Cut: Increased domestic coal production (reduced coal imports by 12% in 2023–24).
- Diversification of Energy Sources:
- Ethanol Blending: 20% ethanol-blended petrol by 2025 to cut oil imports.
- Renewable Energy Push: Solar/wind projects to reduce fossil fuel reliance.