Merchandise trade
Also called: Merchandise exports, Goods trade · Topic: Balance of Payments and Exchange Rates · NCERT: Beyond NCERT
Meaning
Merchandise trade is the buying and selling of physical goods across borders, such as crude oil, gold, cars or medicines. It does not include services like software, tourism or banking. In the balance of payments (BoP), the record of a country's dealings with the rest of the world, merchandise trade sits in the current account. Goods exports are entered as a credit and goods imports as a debit. The gap between them is the balance of trade (BoT):
BoT = value of goods exports − value of goods imports
India has a large merchandise deficit that does not go away from year to year. Imports of crude oil, gold, electronics and coal drive it. India's Commerce Ministry releases merchandise trade data every month.
Example
In NCERT's example BoP table, a country exports goods worth US$150 million and imports goods worth US$240 million. Its balance of trade is 150 − 240 = −US$90 million. That is a trade deficit. In India's own case, high oil prices and a boom in gold imports pushed the current account deficit to a record 4.8% of GDP in FY13.
Don't confuse with
- Services trade (invisibles): this covers things you cannot touch, like software, shipping and tourism. India runs a surplus here, which partly offsets its deficit in goods.
- Current account balance: this is BoT plus net invisibles, meaning services, income and transfers such as remittances. So a trade deficit in goods does not always mean an equally large current account deficit.