(a) Define “Trade surplus”. How is it different from “Current account surplus” ?

(b) “Indian Rupee (`) plunged to an all-time low of ` 74.48 against the US Dollar ($)”.

– The Economic Times

In light of the above report, discuss the impact of the situation on Indian Imports.

a) When the value of exports exceeds the value of imports it is called a trade surplus. It is a positive trade balance.

It is different from the current account balance in the following ways:

i-Trade surplus is a narrow concept as it includes only a part of the current account. The current account balance is a wider concept, and it includes trade surplus.

ii-Trade surplus includes a favourable balance of only visible items. Current account surplus includes the favourable balance of both visible and invisible items.

b) “Indian Rupee (`) plunged to an all-time low of ` 74.48 against the US Dollar ($)”. The impact of the situation on Indian Imports is highlighted below:

i- An increase in the value of US dollar implies the appreciation of the US dollar and depreciation of Indian rupee.

ii- Now, India will have to pay more dollars for its import.

iii- This will reduce the imports by India as the goods from Us have now become expensive to buy.

iv - This will also reduce India’s demand for foreign exchange.