Balance of Trade — Meaning

The Balance of Trade (BOT) is the narrower of the two trade-balance concepts studied in this chapter. It refers to the difference between the total value of a country's VISIBLE EXPORTS (goods sold to other countries) and its VISIBLE IMPORTS (goods bought from other countries) during a given period, usually a financial year. 'Visible' here means physical, merchandise goods — items that can be seen and physically inspected by customs, as opposed to services.

Balance of Trade = Value of Visible Exports − Value of Visible Imports

Three outcomes are possible:

• Favourable (Surplus) Balance of Trade — when the value of a country's exports EXCEEDS the value of its imports.
• Unfavourable (Deficit) Balance of Trade — when the value of a country's imports EXCEEDS the value of its exports.
• Balanced (Equilibrium) Trade — the rare case where exports and imports are exactly equal in value.

India's Balance of Trade has, for much of the post-independence period and especially in recent decades, tended to run in deficit — imports exceeding exports — driven substantially by the country's large and recurring petroleum/crude-oil import bill (since India must import the bulk of the crude oil it consumes) and by significant gold imports. This is a genuine, well-established long-run pattern; the exact SIZE of the deficit in any particular year is published by the Ministry of Commerce/DGCI&S and should be checked against the latest official data rather than assumed to be a fixed number. …