Quick take: Feb trade data explained & why it matters

India's balance of trade in February improved slightly over January, as exports grew for the second successive month and imports moderated slightly. But experts feel it may be too early to cheer as only a consistent growth in exports can help narrow the trade deficit.

Q: What is balance of trade?

A: It is the difference between the value of what a country exports and what it imports. When exports exceed imports, there is a trade surplus, and when imports exceed exports, there is a trade deficit.

Q: Why is balance of trade important?

A: Because it is a key component of the current account. At present, India is running a large current account deficit, which according to the finance minister is a bigger worry than the fiscal deficit. In simple terms, more dollars are flowing out of the country than what is coming in. This weakens the rupee.

Q: Exports have risen for two months in a row. So is the situation getting under control?

A: Too early to say. According to economists, a sustained growth in exports is possible only if the global economy recovers. At this stage, the global economy has stabilised somewhat, but a durable recovery still looks some way off.

Q: Imports moderated somewhat in February. What could be the reasons?

A: Economists say oil and gold imports would have eased a bit. The increase in fuel prices could now be impacting consumption. In the case of gold, imports would have moderated because of the hike in customs duty. Trade deficit in February is typically lower due to seasonal factors. Commerce Secretary SR Rao said the deficit is lower due to a pick-up in exports, adding that the government is taking measures to help push up exports.