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    Explained: Why India's trade deficit was at record high in November

    Explained: Why India's trade deficit was at record high in November

    Explained: Why India's trade deficit was at record high in November
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    By CNBCTV18.com  IST (Published)

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    The value of imports has remained above $50 billion for three consecutive months now mainly because of an explosive fuel bill. Meanwhile, India's exports fell below $30 billion in November.

    Triggering concern among macroeconomics experts, India's trade deficit was calculated at $23.27 billion for the month of November. This is the highest India's trade deficit has ever reached. The value of imports has remained above $50 billion for three consecutive months now. Going by the current trend, India's trade deficit for the third quarter will hit $65 billion.
    As per official data, the imports have gone up by 57 percent (year-on-year) to $53.15 billion. The value of imports has remained above $50 billion for three consecutive months now. The average value of imports used to be in the $40 billion range.
    Why the widening trade gap?
    The trade deficit of a country increases when the value of its exports fall below the value of its imports. India’s trade deficit has been increasing on the back of its increasingly higher imports, while exports have been lower than expected as well. Imports have increased by 57 percent, year-over-year.
    The value of imports has been increasing not due to increased volumes but increased commodity prices, mainly fuel. India, as a net importer of fuel, has been hit hard by the high prices of crude and coal as nations have been struggling to keep abreast of the power crises across the world.
    The increase of 132 percent in crude prices has hit Indian imports hard. The rise in prices of other commodities like chemicals, gold, electronics and machinery has also drastically increased India’s import ledger.
    At the same time, the tally of exports has also been the lowest since February 2021, even though petroleum products, engineering goods, chemicals and others have performed well.
    Why is it bad?
    The concerns are well-placed as this is the third consecutive month when India's trade deficit -- the difference between the value of imports and that of exports -- was upwards of $20 billion. A higher trade deficit may weaken the Indian rupee against the dollar.
    While a trade deficit is not inherently bad or good, it can have different effects, depending on the economy in context. In India’s context, the simplest cost will be increasingly higher costs of imported goods for consumers while domestic workers also earn less due to a weakened rupee. Depreciation of the rupee can be welcome in the global economic context, but not over the longer term.
    Continuing trade deficits also eat into the country’s balance of payments (BoP). India’s balance of payments surplus stood at $80 billion.
    What lies ahead
    Going by the current trend, India's trade deficit for the third quarter will hit the $65-billion mark. Meanwhile, India's exports fell below $30 billion in November. The last time this happened was in February this year. However,oil exports of petroleum products, chemicals, cotton textiles, and electronics have gone up.
     
     
     
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