The trade balance, also known as the balance of trade (BOT), is the calculation of a

country's exports minus its imports.

When a country imports more than it exports, the resulting negative number is called
a trade deficit. When the opposite is true, a country has a trade surplus

Significance

Net trade with foreigners: exports less imports. A trade deficit means that exports are
insufficient to pay for exports; a trade surplus, the opposite.

Sometimes called "net exports", the trade balance is a component of GDP, to the
effect that a perfectly equilibrated trade balance makes the GDP dependent only on
domestic values (consumption, public expenditure, investments).

A simultaneous increase of both imports and exports by the same amount leaves
unaltered the trade balance. Any difference in dynamics between exports and imports
has a multiplied effect on trade balance.

Composition

Trade balance is usually decomposed by product and by country (bilateral trade

balances). Relevant is the degree of concentration of the imbalance in trade caused by
one or few commodities. If concentration is high, a targeted industrial policy could
improve the balance (e.g. reduce the imbalance).

On the other hand, if a deficit is due only to few partners, proactive and consensusbased trade negotiations with them could fairly quickly set the problem.

Although less general than trade balance, which includes both goods and services, the
"merchandise balance", which includes only goods and not services, is sometime
used because of better data availability

Determinants

Convergent or divergent dynamics of imports and exports are the first causes of trade
balance changes.

Everything that impact asymmetrically on imports and exports can impact the trade
balance. In particular price and non-price competitiveness is relevant. If external
pressure forces down the prices at which a country sells its exports, than a trade
deficit is more likely ("terms of trade" effect). In other words, in a hierarchical world,
trade balance can reflect political balance of power.

A faster GDP growth than trade partners' ones usually results in trade deficit, since
imports are elastic to GDP (they rise more than proportionally).

Currency reak exchange rate can be very important: possibly due to a fixed exchange
rate and a higher inflation ratethan commercial partners, an overvaluation of the
domestic currency can lead to deep trade deficits on most products and with most
countries. A sharp devaluation can dramatically improve all these relationships.

If financial transaction are particularly intensive and autonomous, an inflow

of FDI can lead to higher imports (of production inputs for the new foreign-owned
plants), also because of revaluation of currency. Hopefully, this short-run effect will
be balanced by more exports in the future. In this cases, trade balance is adjusting to
financial movements.

INDIA BALANCE OF TRADE:

India recorded a USD 5.07 billion trade deficit in March of 2016, compared to a USD 11.39
billion gap a year earlier. It is the lowest deficit since March of 2011. Exports fell 5.47
percent year-on-year to USD 22.7 billion, the 16th straight month of decline as nonpetroleum exports decreased 3.49 percent. Imports dropped 21.56 percent year-on-year to
USD 27.78 billion. Oil purchases slumped 35.3 percent and non-oil imports shrank 17.98
percent. In the 2015-2016 fiscal year, trade deficit narrowed to USD 118.5 billion from USD
137.7 billion in the previous period, as exports decreased 15.8 percent and imports fell 15.28
percent. Balance of Trade in India averaged -2105.38 USD Million from 1957 until 2016,
reaching an all time high of 258.90 USD Million in March of 1977 and a record low of
-20210.90 USD Million in October of 2012. Balance of Trade in India is reported by the
Ministry of Commerce and Industry, India.

INDIA TRADE BALANCE

Trade deficit narrows in March
Recently released data related to Indias external sector showed that the trade deficit totaled
USD 5.1 billion in March, which was a smaller shortfall over the USD 11.4 billion deficit
observed in the same month last year. In addition, the March result marked the smallest gap
since March 2011. For the 12 months up to March, the trade deficit recorded USD 118.5
billion, which was an improvement from the 124.8 billion gap tallied in the 12 months up to
February.
The narrowing in the trade deficit stemmed from imports contracting a notable 21.6%
annually in March, which was a significantly more profound drop than the 5.0% plunge
tallied in February. The low-oil-price environment has caused the value of Indias imports to
drop. Accordingly, oil imports totaled USD 4.8 billion in March, which represented a 35.3%
decrease
compared
to
the
same
month
last
year.

Meanwhile, exports fell 5.5% in March, which was a smaller fall than Februarys 5.7%
contraction and marked the best result since December 2014.
FocusEconomics Consensus Forecast panelists expect exports to grow 4.3% in FY 2016,
reaching USD 283 billion. In FY 2017, the panel sees exports expanding 8.4% to USD 307
billion.
India - Trade Balance Data

Trade Balance (USD billion)

2011

2012

2013

2014

2015

-183.8

-189.5

-136.6

-137.6