Balance of trade deficit: Indian economy’s Achilles heel

By Harshita Kain

Since 1957 India has been recording sustained trade deficits. Trade deficit is not a new problem in India and hence has failed to garner much attention but we cannot be indifferent to the fact that trade deficit has been one common factor for all the western countries in crisis, during the last ten years making it significantly clear that it is one serious problem that cannot be ignored.

A trade deficit represents an outflow of domestic currency to foreign markets. This means that large amounts of the Indian currency are being held by foreign nations, which they may decide to sell at any time. A large increase in Rupee sales can drive the value of the currency down, making it more costly to purchase imports. Small term trade deficits are not considered to be a major problem however if these continue for a longer period a time may come when a country may be robbed off its capability to import.

Trade deficit is considered harmful as an increase in the imports over the exports destroys jobs in the domestic. Hence a trade deficit results in unemployment within a country and is hence undesirable. Another danger lurking with trade deficit is its impact on the stock markets as a prolonged trade deficit could have adverse effects. If a country has been importing more goods than it is exporting for a sustained period of time, it is essentially going into debt.

One of the major reasons why a country faces a trade deficit is because it cannot produce as much as is required hence to overcome trade deficits the most logical solution would be to increase the total exports. To achieve this, a variety of methods could be adopted. The first is to increase the productivity of the goods being produced in India which would enable it to increase the quantity of exports. The government ,this year had earlier also announced several export boosting measures like extension of its interest subvention scheme to boost textile and engineering exports. Another step could be to start exporting new goods and promote the production of indigenous goods. India is the land of cultures and traditions and is popular all over the world for this.

If the government promotes the production of indigenous goods in India it would lead to a great bloom in the total exports as these products have a great demand all over the world. Indigenous goods from various parts of the country such as exotic Indian textiles like saris and suits, organic and traditional foods, ayurvedic and homemade cosmetics and medicines should be promoted. And finally India could start exporting to new countries. There are 196 countries in the world. International expansion to new countries is a very important step boost exports and to curb trade deficit.

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