Meaning of Balance of Trade

Every country buys goods from, and sells goods to, other countries. Balance of Trade (BOT) is the difference between the value of a country's visible exports (goods physically shipped out) and its visible imports (goods physically brought in) during a given period, usually a year. It is also called the trade balance or the balance of merchandise trade, because it covers tangible goods only — services, income and transfers are not part of it.

Balance of Trade can be of three kinds:

• Favourable (surplus) Balance of Trade — exports exceed imports (Exports > Imports).
• Unfavourable (deficit) Balance of Trade — imports exceed exports (Imports > Exports).
• Balance of Trade at Equilibrium — exports equal imports (Exports = Imports).

A country's Balance of Trade is only one narrow slice of its wider economic dealings with the rest of the world — the fuller picture is what the Balance of Payments records, covered in this chapter. This chapter's treatment of external-sector accounting draws on the same balance-of-payments framework that every Indian commerce/economics syllabus, including CBSE's, builds international-trade chapters around — the definitions and classification here are the standard ones used nationally, not a Tamil Nadu-specific variant.