Question 1 · 10 marks · 166 words written
The challenge of a high trade deficit haunts India. Analyze its impact on the Indian economy.
Opening · a definition
Trade deficit occur when a country imports more than it exports to others.
Body · points
Challenge of trade deficit for India
→ most of FTAs are showing negative concerns and trade deficits → Trade deficit with ASEAN
→ Trade deficit with China around 95 billion dollar/year a huge amount.
→ Import dependency of oil and crude oil, fossil fuel creates more trade deficit → Russia-India-crude oil
→ low Competitive advantage in Indian Export and low manufacturing base.
Impact of trade deficit on Economy
→ Outflow of foreign exchange in order to fill gap of income-outflow
→ High trade deficit lead to high inflation and increased vulnerability to global supply chain disruption and exchange rate volatility
→ ↓ investor confidence and reduce foreign investment in economy.
→ Increased cost of borrowing to govt and higher interest rate
→ Trade deficit along with fiscal deficit 'twin deficit' complicate problem.
Close · a way forward
Comprehensive review of FTA, domestic export capabilities build up, self reliance, vocal for local will help curbing trade deficit