Context:
India´s merchandise trade narrowed to $21.94 in December, down from a record $31.86 billion in November, as gold imports halved to $4.7 billion, according to commerce department released.
Merchandise Trade Deficit
A merchandise trade deficit is when a country imports more than it exports. This simply means that the country is spending more on foreign goods than it is earning from exports.
- Explanation
- The balance of trade (BOT) is the total value of a country’s exports minus its total value of imports.
- A negative BOT indicates a trade deficit.
- A positive BOT indicates a trade surplus.
- Factors that can contribute to a trade deficit
- If it is rich with a high level of demand in that country, it may import more goods than exporting.
- Over dependence on the use of imported foreign goods may force the country to import more than export.
- Over reliance on foreign goods due to other factors and which influence the view of public perception may import more goods than it exports.
- Effects of having a trade deficit
- A trade deficit can become a political matter that affects decisions on policy.
- A trade deficit may suggest that the country is excessively dependent on imports.
