Trade deficit, its effects and solution

Government and Reserve bank of India are trying to control the trade deficit as it was 4.2% of the GDP in 2011-12 .And because of the wider deficit; Indian currency has regularly fallen down. Main reason behind the broader trade deficit of the country is the higher import of gold and crude oil.

Demand of Gold is very high in this country because of these two reasons.

1.       Indian loves a lot to this precious Yellow metal and likes to wear its ornaments. They also give a lot of gold ornament to their child during their marriage and also gift it to their relatives.

2.       Gold gives highest return to its investors.

The consumption of crude oil is also higher as government provides a huge subsidy on diesel and LPG which is also used by the industrial houses.
Now, Reserve bank of India is considering the financial products which can mimic the returns on Gold. Government had already increased the tax on the import of Gold to control the fall in rupee. Main reason behind this fall is the increased demand of dollar by the importers.

It is also expected that the price of diesel and LPG will be increased after the presidential election to control the trade deficit and the fall in rupee.

Economy has expected a reform from the governments side because it may happens that Reserve Bank of India will not decrease the key rates as the inflation of country is higher than its growth.

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