OBJECTIVE
Trade deficit is an economic measure of international trade in which a country's imports exceed its exports.
Fiscal Deficit is the difference between total revenue and total expenditure of the government of a Country.
In this webinar, we will examine and analyse the trade and fiscal deficits of India. We shall also look at relevant statistics.
4. Presentation Schema
Trade Deficit Introduction
Importance of
International
Trade
Reasons for
Trade Deficit
Relevant
Statistics
Fiscal Deficit Introduction
Impact of
Deficit Budget
Fiscal Deficit
Reasons for
Fiscal Deficit
India’s Fiscal
Deficit
Trend in Budget
Financing of the
Deficit
7. Introduction
Trade
Refers to the activity of buying and selling, or exchanging,
goods and/or services between people or countries
Internal International
Internal trade also known as Domestic trade,
or home trade, is the exchange of domestic
goods within the boundaries of a country
International trade is the exchange of
goods and services between countries
Import Export
An import is a good or service
bought in one country that was
produced in another
An export is a good or service
produced in one country that is bought
by someone in another country
8. Importance of International Trade
Stimulates the
international
development of the
country
Makes use of
abundant raw
materials across
countries
Creates job
opportunities between
the transacting
countries
The trading partners
gets goods cheaper
than otherwise
Enables to dispose of
surplus production
Stimulates the spirit
of competition
Promotes mutual
cooperation among
different countries
9. Trade Deficit
It is also referred to as a negative balance of trade (BOT).
A trade deficit represents an outflow of domestic
currency to foreign markets.
A trade deficit occurs when a country's imports exceed
its exports during a given time period.
Value of
Exports
Value of
Imports
Trade
Deficit
12. Top 15 Partners Based on Total Trade
Country Export Import Total Trade Trade Balance
U S A 250,614.29 176,280.91 426,895.20 74,333.38
CHINA P 81,376.93 329,696.03 411,072.96 -248,319.10
UAE 138,585.27 137,067.50 275,652.77 1,517.77
SAUDI ARABIA 27,034.44 127,719.84 154,754.27 -100,685.40
HONG KONG 55,152.51 82,417.43 137,569.95 -27,264.92
IRAQ 9,366.24 107,759.84 117,126.08 -98,393.60
SINGAPORE 45,976.06 68,240.81 114,216.86 -22,264.75
GERMANY 38,779.91 61,777.01 100,556.92 -22,997.10
KOREA RP 21,846.99 76,608.40 98,455.39 -54,761.40
SWITZERLAND 5,756.66 89,691.45 95,448.11 -83,934.79
INDONESIA 18,026.18 67,162.14 85,188.32 -49,135.96
JAPAN 21,792.48 60,691.40 82,483.87 -38,898.92
MALAYSIA 30,366.22 48,240.53 78,606.74 -17,874.31
U K 40,066.37 31,787.66 71,854.03 8,278.70
BELGIUM 27,812.43 42,036.70 69,849.13 -14,224.27
₹ crores [2019-20 – upto November]
15. Reasons for Trade Deficit
Domestic market’s inability to
compete with the global standards
Demand exceed supplies
from home country
Excessive Imports of Goods
other than necessities
Major Reasons for Trade Deficit in India
Oil imports
Gold
imports
Import of
Electronic
goods
Import of
Pearls,
Precious
and Semi-
precious
stones
16. Composition of Imports to India [10 Year Average]
29%
9%
8%
7%
6%
41%
Petroleum, Crude & products
Electronic goods
Gold
Machinery, electrical & non-electrical
Pearls, precious & Semi-precious stones
Others
17. Impact of Trade Deficit in India
Reduction in
Foreign
Exchange
Reserves
Economic
Growth and
Stability is
Affected
Devaluation of
Indian
Currency
Negative
impact on
Domestic
Businesses
18. Value of Foreign Currencies against ₹
0.00
20.00
40.00
60.00
80.00
100.00
120.00
US Dollar Pound Sterling Japanese Yen Euro
[Average Exchange Rate during FY since 1980-81]
22. Introduction
Government Budget
A government budget is a document prepared by the government
or other political entity presenting its anticipated revenues and
proposed spending for the coming financial year
Surplus Deficit
Expected government
revenues exceed the
estimated government
expenditure in a
particular financial year
Estimated government
expenditure exceeds the
expected government
revenue in a particular
financial year
Balanced
Estimated government
expenditure equals the
expected government
receipts in a particular
financial year
23. Merits and Demerits of Fiscal Deficit
Helps in addressing
public concerns such
as unemployment at
times of economic
recession
More spending leads
to public welfare
Might Indicate
unwanted
expenditures by the
government
Increases burden on
the government by
accumulating debts
Merits Demerits
25. Fiscal Deficit in India
Govt.
Revenue
Govt.
Expenditure
Fiscal
Deficit
A country's fiscal balance is measured by its government's
revenue vis-a-vis its expenditure in a given financial year
Capital + Revenue expenditure Revenue receipts + Capital Receipts
• Taxes
• Interest Receipts
• Other Non-tax
revenues such
as income from
public services
• Public Services
& Welfare
• Grants
• Internal Debts of
Central Govt.
• Recoveries of
Loans & Advances
• Capital Expenditure
for Public Services &
Welfare
• Repayment of Debts
• Loans & Advances
26. Reasons for Fiscal Deficit in India
High levels of tax avoidance and tax evasion
Government engaged in extra spending on projects
Reduction in tax rates without bringing down equivalent
expenditure in Government spending
Major hike in capital expenditure for the welfare of the economy
Failure to adhere proper fiscal policy
30. Impact of Fiscal Deficit in India - Financing
When there is an overall budget deficit of the
Government, it has to be financed by either by borrowing
Borrowings from the market from the Reserve Bank of Indiaor
• RBI has the power to create new
money, that is, to issue new notes.
• Thus, to finance its fiscal deficit, the
government may borrow from Reserve
Bank of India against its own securities
This is only a technical way of creating new
money because the government has to pay
neither the rate of interest nor the original
amount when it borrows from the Reserve
Bank of India against its own securities
Fiscal deficit can be met by borrowings from
-the internal sources (public, commercial banks
etc.) or
-the external sources (foreign governments,
international organisations etc.)
However, this process leads to increase in
money supply and results in inflation
31. Disadvantage of Fiscal Deficit Financing
Affecting the
overall
economic
growth
Foreign
Dependence
Increase in
Inflation
Debt trap
Deficit Financing leads to:
32. Financing of Fiscal Deficit in India [₹ Crores]
2014-15
2015-16
2016-17
2017-18
2018-19
2014-15 2015-16 2016-17 2017-18 2018-19
External finance 12,933.00 12,748.00 17,996.60 7,930.74 -4,893.00
Market borrowings 457,617.00 414,931.00 338,149.12 450,728.31 422,737.00
Other borrowings -37,485.00 91,942.00 188,368.17 128,312.28 175,353.00
Draw down of cash balances 77,752.00 13,170.00 -8,895.00 4,090.75 41,201.00
• Drawdown of cash balances represent net changes in Cash balances of RBI (if
positive more money enters the economy)
• Market Borrowing include dated securities and 364-day treasury bills
• Other borrowings comprise small savings, state provident fund, special
deposits, reserve funds, treasury bills excluding 364-day treasury
• External Finance means borrowing from foreign sources