Supporting Points
Ladies and Gentlemen: A trade deficit occurs when the nation’s
IMPORTS EXCEED EXPORTS, as we know whenever consumption
exceeds production it becomes a cause for concern. However the key
to determining whether Trade deficit is a boon or bane depends upon
nature of consumption. If imports are meant for further processing for
exports then such trade deficit is a boon, whereas end user
consumption is always a bane
A trade deficit may pose a problem for an economy witnessing slow
growth, however in India’s case our demand is for further growth.
Lack of cheap resources domestically is resulting in higher imports of
cheaper goods of high quality.
Ultimately it is the Indian consumer who benefits as not only the
goods are cheaper but also of a very high quality which improves the
local manufacturing sector quality standards. So for India the trade
deficit it is a boom
In the case of the US trade deficit at $800 billion, it’s a problem due to
the simultaneous effect of war expenditure in Iraq which does not
contribute to raising productive resources, and massive tax cuts
granted by the economy has led to an impetus on immediate
consumption. Should the tax rates be raised and stimulus given on
savings the trade deficit would again reverse.
Also to be noted is that despite the huge trade deficit, the statistics
reveal that unemployment is lower, the Dow Jones is also rising and
household wealth is higher than in the 1990’s after being adjusted
even for inflation. So a trade deficit may not necessary be an evil
thing for an economy.
Ordinarily a trade deficit above $100 billion as is India’s case would
be a grave cause for concern when compared to economies like
China, however the difference lies primarily on account of oil imports
constituting a much larger component of our total imports and the
worrisome increase in oil prices from $40 /barrel to $60/barrel. A
more representative trade deficit will arise if India concentrates on
managing the energy security issue. Greater use of nuclear, wind
based energy sources have to be strongly encouraged to better
manage our energy concerns. Once our energy production increases,
then automatically oil imports will begin to reduce and our trade deficit
will automatically improve
Opposing Points
Taking the example of the US trade deficit which has come close to
7 % of GDP is creating a class of highly nervous investors such as
George Soros, and Warren Buffet. The faith of investors in the US
economy has diminished and this has resulted in a fall in the value of
the dollar globally. Why this has implication for India’s trade deficit is
that till now our export strategy was largely dependent on IT exports
to USA, when the USA tightens its belt a large chunk of IT exports
too may come under pressure, so whatever trade surplus revenues
were being created will also get diminished. This will place additional
pressure on India’s trade deficit and it may widen further.
A trade deficit cannot be taken lightly in India; currently our export
target is $125 billion whereas the import target is closer to $140
billion. While crude oil constitutes a major chunk, another major part
of our imports are edible oils and other commodities for which India
is a net importer and not exporter. This clearly shows our
dependency not only for power but basic consumables.
Currently only 2% of agri-produce is processed further for future
consumption. This reflects the huge waste and lost forex earnings
that could accrue by creating a proper strategy for Food Processing
Industry to flourish. This will not only reduce imports but boost export
earnings and the agricultural industry.
A trade deficit would only be acceptable if India had a major export
strategy based on using current imports. However major chunk of
Indian exports is based on software exports and not from Oil and
commodity exports. Apart from the Gems and Jewellery sector all
other major export sectors do not depend on imports for raw
material.
The fact is our trade deficit is merely to meet our huge consumption,
and that too is not concentrated for use in one sector to produce
something more productive, but to meet the needs for small kitchens
spread across million of rural villages. Thus neglecting to improve
the trade deficit is a mistake in India
Participants have clearly shown that opposing points are possible
and yet each viewpoint is valid. Today India has a trade deficit and
yet it is one of the fastest growing countries. The US also has a trade
deficit however the services sector which makes 70% of US GDP is
growing at a respectable rate.
However a Trade deficit cannot be ignored for the very valid reason
that an economy that is consuming more than it is producing is
structurally wrong somewhere. Thus while the overall picture may
appear sound, the foundation may have some cracks. Care must be
taken to rectify the cause of the trade deficit while there is time
available to do so.
Ladies and Gentlemen: A trade deficit occurs when the nation’s
IMPORTS EXCEED EXPORTS, as we know whenever consumption
exceeds production it becomes a cause for concern. However the key
to determining whether Trade deficit is a boon or bane depends upon
nature of consumption. If imports are meant for further processing for
exports then such trade deficit is a boon, whereas end user
consumption is always a bane
A trade deficit may pose a problem for an economy witnessing slow
growth, however in India’s case our demand is for further growth.
Lack of cheap resources domestically is resulting in higher imports of
cheaper goods of high quality.
Ultimately it is the Indian consumer who benefits as not only the
goods are cheaper but also of a very high quality which improves the
local manufacturing sector quality standards. So for India the trade
deficit it is a boom
In the case of the US trade deficit at $800 billion, it’s a problem due to
the simultaneous effect of war expenditure in Iraq which does not
contribute to raising productive resources, and massive tax cuts
granted by the economy has led to an impetus on immediate
consumption. Should the tax rates be raised and stimulus given on
savings the trade deficit would again reverse.
Also to be noted is that despite the huge trade deficit, the statistics
reveal that unemployment is lower, the Dow Jones is also rising and
household wealth is higher than in the 1990’s after being adjusted
even for inflation. So a trade deficit may not necessary be an evil
thing for an economy.
Ordinarily a trade deficit above $100 billion as is India’s case would
be a grave cause for concern when compared to economies like
China, however the difference lies primarily on account of oil imports
constituting a much larger component of our total imports and the
worrisome increase in oil prices from $40 /barrel to $60/barrel. A
more representative trade deficit will arise if India concentrates on
managing the energy security issue. Greater use of nuclear, wind
based energy sources have to be strongly encouraged to better
manage our energy concerns. Once our energy production increases,
then automatically oil imports will begin to reduce and our trade deficit
will automatically improve
Opposing Points
Taking the example of the US trade deficit which has come close to
7 % of GDP is creating a class of highly nervous investors such as
George Soros, and Warren Buffet. The faith of investors in the US
economy has diminished and this has resulted in a fall in the value of
the dollar globally. Why this has implication for India’s trade deficit is
that till now our export strategy was largely dependent on IT exports
to USA, when the USA tightens its belt a large chunk of IT exports
too may come under pressure, so whatever trade surplus revenues
were being created will also get diminished. This will place additional
pressure on India’s trade deficit and it may widen further.
A trade deficit cannot be taken lightly in India; currently our export
target is $125 billion whereas the import target is closer to $140
billion. While crude oil constitutes a major chunk, another major part
of our imports are edible oils and other commodities for which India
is a net importer and not exporter. This clearly shows our
dependency not only for power but basic consumables.
Currently only 2% of agri-produce is processed further for future
consumption. This reflects the huge waste and lost forex earnings
that could accrue by creating a proper strategy for Food Processing
Industry to flourish. This will not only reduce imports but boost export
earnings and the agricultural industry.
A trade deficit would only be acceptable if India had a major export
strategy based on using current imports. However major chunk of
Indian exports is based on software exports and not from Oil and
commodity exports. Apart from the Gems and Jewellery sector all
other major export sectors do not depend on imports for raw
material.
The fact is our trade deficit is merely to meet our huge consumption,
and that too is not concentrated for use in one sector to produce
something more productive, but to meet the needs for small kitchens
spread across million of rural villages. Thus neglecting to improve
the trade deficit is a mistake in India
Participants have clearly shown that opposing points are possible
and yet each viewpoint is valid. Today India has a trade deficit and
yet it is one of the fastest growing countries. The US also has a trade
deficit however the services sector which makes 70% of US GDP is
growing at a respectable rate.
However a Trade deficit cannot be ignored for the very valid reason
that an economy that is consuming more than it is producing is
structurally wrong somewhere. Thus while the overall picture may
appear sound, the foundation may have some cracks. Care must be
taken to rectify the cause of the trade deficit while there is time
available to do so.
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