Balance of trade is the difference between the monetary value of exports and imports in an economy over a certain period of time. A positive balance of trade is known as a trade surplus and occurs when value of exports is higher than that of imports; a negative balance of trade is known as a trade deficit or a trade gap. India suffers from a trade deficit of 802.43 INR Billion in February of 2013. Balance of Trade in India is reported by the Ministry of Commerce and Industry. Historically, from 1978 until 2013, India’s Balance of Trade averaged -114.26 INR Billion reaching an all-time high of 13.91 INR Billion in April of 1991 and a record low of -1111.46 INR Billion in October of 2012.
India has been recording sustained trade deficits due to low exports base and high imports of coal and oil for its energy needs. These rising deficits are also due to increased foreign-currency borrowing that raises India’s vulnerability to international financial volatility. Wider trade deficits can also weaken the currency, raising domestic prices of imported commodities, further fueling India’s already high inflation rate.
The ever growing current account deficit and trade deficit is becoming a very serious issue, which is assuming massive proportions as a percentage of the Gross Domestic Product (GDP). It widened to a record high of 6.7 per cent of the GDP October-December quarter this fiscal 2012, the government appeared undaunted and asserted that it would take more measures to bridge the ‘large’ gap. Both the RBI and the government ensured that they will continue to monitor CAD. Here is few ways to bridge up the trade gap.
SUGGESTIONS TO BRIDGE THE WIDENING TRADE GAP
SUGGESTIONS TO THE GOVERNMENT
• GOVERNMENT’S CHECK OVER THE INCREASE IN GOLD IMPORTS
• GOVRNMENT'S STRONG SUPPORT TOWARDS THE FDI
FDI is the type of investment that injects the foreign funds into an enterprise that operates in a different country of origin from the investor. Starting from a baseline of less than $1 billion in 1990, cumulative amount of FDI (from April 2000 to July 2012) into India is $ 176.76 billion, a recent UNCTAD survey projected India as the second most important FDI destination for transnational corporations during 2010–2012. Mauritius, Singapore, US and UK are the leading sources of FDI. Government can strongly support towards the entry and existence of Foreign Direct Investment in Country. The policies should be liberalised and favourable to FDI. This can bring in Foreign exchange. FDI also helps to solve social problems like unemployment, it has created upto 4 million new jobs in the previous years. Government can also take opportunity of learning the foreign technology that is not in existence in India.
Increase special incentives for exporters who establish their brands overseas so that India reaches out to the global market with her own products especially in areas like agriculture, where there is huge scope for branded processed food articles.
SUGGESTIONS TO EXPORTERS
• NET ADDITION TO PRODUCTS TO INCREASE EXPORTS
In order to run a surplus, the imports should comprise base materials and the extent of value added locally by intellect or labor or both, which would be the net addition. But India failed to make a net addition to its exports. India’s export of capital goods has been lukewarm and has also been on a downward trend. India imports raw diamonds and exports processed diamonds. It can instead build a brand and increase exports of branded jewellery studded with diamonds. India makes surplus grain production which is unfortunately allowed to rot in warehouses; it can instead process it and export the processed and branded food products to earn valuable foreign exchange.
The Government is already doing the better part in encouraging the organizations to export more. Exporters should also acknowledge these facilitating factors and utilize them in the right way.
SUGGESTIONS TO THE INDIAN BUSINESS PEOPLE
• INNOVATIVENESS IN THE BUSINESS MODEL/PRODUCTS
Innovativeness is not the introduction of entirely a new product. Businessmen can also make small innovations in bringing their products to the market. They can learn from the strategy of foreign companies and imitate the products in local market. This is as “Think Global and act Local”. The best example of this strategy is Vada Pav which is labelled as “Poor man’s burger”. The life of Vada Pav has seen many forms in every food joint. "Jumbo King” a retail food joint for branded Vada Pav in Mumbai, sells around 10,000 Vada Pavs each day which is just 10 % of total sales in Mumbai. Jumbo King has successfully adopted the model of McDonalds in India. Another good example is Balaji Chips which sells huge volumes and gives good competition to brands like Pringles. Balaji sells packaged potato chips and snacks. It intends to pull way ahead of its competitors with its newly installed fully-automated Food-Tech Potato Processing Machinery. We should start focussing on reducing imports for domestic consumption. The spirit of Indian businessmen can be in introducing latest technologies with Indian inputs to save precious foreign exchange.
IDEAS FOR THE SOCIETY ( I suggest this is taken to the Government)
• INITIATIVE TOWARDS FINDING AN ALTERNATIVE SOURCE FOR OIL
India is deficient in domestic crude oil reserves, the ever-rising oil bill is perceived to be an uncontrollable factor. The rising prices of oil accounts for about 35% of India’s merchandise imports in 2012.
If oil continues to be an important and critical component of deficit, the level of seriousness may increase. Initiative should be taken to find alternative sources for oil; sources like hydro power, solar energy and wind energy are also advisable. The consumption of oil should be reduced and people should be made aware of the situation faced by the country. India cannot be said rich when poor travels in cars. It can become rich only when the rich takes the Public transport.
There are also numerous other ways for bridging up the Trade deficit. It is the responsibility of every citizen to help India to overcome and repay its borrowing from foreign countries. Citizens should not evade the duties and taxes for which they are liable to the Government. They must understand that these duties and taxes are levied for their own benefits and welfare.
SUGGESTIONS TO STUDENTS
Students can also contribute on their part by avoiding the use of imported brands and products which can help to decrease imports. We can use our own Indian brands and feel proud about our little contribution to our country. Students should shun International Brands which do not yield any value and use domestic brands. A new silent swadeshi movement to promote Indian brands may be a good idea. We should stage street plays all over India to communicate our ideas to our beloved citizens.
As students we can also educate the public about the trade deficit issues in the country. The social responsibility of students is greater than what we actually think. We can preplan our career in such a way we benefit the society. Students can take up entrepreneurship and come up with their own organizations. Why to be a job seeker? Think of becoming a job giver. Young minds can work more effectively and bring in more changes to the society. There should be favorable situation prevailing in the country with a trade surplus as soon as possible. We should start thinking bigger and different to further develop our nation.
Article by
Dhanaranjani J
Ist MIB
PSGCAS
Dhanaranjani J
Ist MIB
PSGCAS
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