India's trade deficit widens with top partners China, Russia, in 2023-24
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New Delhi: In the fiscal year 2023-24, India experienced a trade deficit with nine of its top ten trading partners, including China, Russia, Singapore, and Korea. According to the news agency PTI, the deficit with China, Russia, Korea, and Hong Kong increased compared to the previous fiscal year, while it decreased with the UAE, Saudi Arabia, Indonesia, and Iraq.
The trade deficit with China grew to $85 billion, with Russia to $57.2 billion, with Korea to $14.71 billion, and with Hong Kong to $12.2 billion, up from $83.2 billion, $43 billion, $14.57 billion, and $8.38 billion, respectively, in 2022-23. China became India’s largest trading partner with $118.4 billion in two-way trade, surpassing the US, whose bilateral trade with India stood at $118.28 billion. India’s total trade deficit narrowed to $238.3 billion in the last fiscal year from $264.9 billion in the previous year, the report said.
Trade experts told the news agency that a trade deficit isn’t always negative, especially if it involves importing raw materials or intermediary products to boost manufacturing and exports. However, it can pressure the domestic currency. The Global Trade Research Initiative noted that a bilateral trade deficit isn’t a significant issue unless it makes a country overly dependent on critical supplies from that partner. Conversely, a rising overall trade deficit is detrimental to the economy.
GTRI Founder Ajay Srivastava told PTI that an increasing trade deficit, even when due to importing essential raw materials and intermediates, can lead to currency depreciation as more foreign currency is required for imports. This depreciation makes imports more expensive, exacerbating the deficit.
He said that to cover the growing deficit, the country might need to borrow more from foreign lenders, increasing external debt and this can deplete foreign exchange reserves and signal economic instability to investors, leading to reduced foreign investment. “Cutting trade deficit requires boosting exports, reducing unnecessary imports, developing domestic industries, and managing currency and debt levels effectively,” Srivastava added.