Let us first describe the Make in India program before discussing the issues of India’s trade balance. The Make in India program was launched in 2014 with the objective of making India a global manufacturing hub. The idea was to give a boost to India’s manufacturing sector.
The trade balance is the net result of a country’s exports minus the country’s imports. If the country’s exports are more than the country’s imports, then, the trade balance is known as the trade surplus. If the country’s exports are less than the country’s imports, then, the trade balance is known as the trade deficit.
In the case of India, the exports are less than the imports. Therefore, India continues to have a large trade deficit. Here are the numbers to understand this better. In 2018, as per the world bank data, India’s overall exports were 536.62 billion US$. Whereas in 2018, India’s overall imports were 642.7 billion US$. Therefore, in 2018, India had a trade deficit of 536.62 – 642.7 = approximately 106 billion US$. That’s huge. The data from the 1980s show that India has always incurred a trade deficit. The country has not seen a trade surplus. India’s trade deficit was highest in 2012 at 136 billion US$.
What are the reasons for India’s high trade deficit? There are 3 major elements to India’s high trade deficit.
- Energy security – India imports a huge amount of oil. As per the data, India is the world’s 3rd largest consumer of oil.
- Defense Purchase – Because of geopolitical risks, India continues to procure defense equipment from other countries resulting in a high defense import bill.
- The trade deficit with China – China has become a global manufacturing powerhouse. And despite the launch of Make in India policy in 2014, India still has a massive trade deficit of 60+ billion US$ with China.