Context:
India recorded a trade deficit with nine of its top ten trading partners, including China, Russia, Singapore, and Korea, in 2023-24, according to official data.
Key Highlights:
India Records Trade Deficit with Major Partners
| Countries | Trade DeficitIn $ billion(2023-2024) | Trade DeficitIn $ billion (2022-2023) |
| China | 85 | 83.2 |
| Russia | 57.2 | 43 |
| South Korea | 14.71 | 14.57 |
| Hong Kong | 12.2 | 8.38 |
Trade deficit
- It is defined as the difference between imports and exports. A trade deficit occurs when a country imports more goods and services than it exports. This can have significant implications for a nation’s economic stability, impacting currency exchange rates and foreign investment.
Trade Deficit Trends
- The data also showed that the deficit with China, Russia, Korea, and Hong Kong increased in the last fiscal year compared to 2022-23, while the trade gap with the UAE, Saudi Arabia, Russia, Indonesia, and Iraq narrowed, possibly due to decreased oil imports.
China’s Dominance in Trade
- China emerged as India’s largest trading partner with $118.4 billion in two-way commerce in 2023-24, surpassing the USA which had bilateral trade with India amounting to $118.28 billion.
- This heavy reliance on a single trading partner can make India vulnerable to economic fluctuations in China.
- The USA had been India’s top trading partner during 2021-22 and 2022-23.
Trade Surpluses
- Despite the overall deficit, India recorded a trade surplus of $36.74 billion with the U.S. in 2023-24.
- The country also has trade surpluses with the U.K., Belgium, Italy, France, and Bangladesh.
Overall Trade Deficit
- India’s total trade deficit narrowed to $238.3 billion in 2023-24, reflecting a positive trend. However, addressing the trade imbalance remains crucial for long-term economic stability.
Impact of Trade deficit
- A rising trade deficit can cause the country’s currency to depreciate, making imports more expensive, worsening the deficit, and potentially fueling inflation.
- To cover the growing deficit, the country might need to borrow more from foreign lenders, increasing external debt, depleting foreign exchange reserves, and signaling economic instability to investors, leading to reduced foreign investment.
Measures needed to address a trade deficit
- Strategies to address the trade deficit promoting export-oriented industries, encouraging import substitution by developing domestic manufacturing capabilities, and negotiating beneficial free trade agreements like RCEP (Regional Comprehensive Economic Partnershi) for boosting exports and attracting foreign investment