In the light of the above report, discuss the impact of the situation on Indian Imports.
Exports of Goods and Services > Imports of Goods and Service ⇒ Current Account Surplus
Trade surplus is different from "Current Account Surplus". This is because current account is the account which maintains the records of imports and exports of goods and services as well as the record of unilateral transfers.
Current Account Balance = Balance of Visible Trade + Balance of Invisible Trade + Balance of Unilateral Transfers
When imports falls, net exports (Exports-Imports) of a country rises. The given figure explains this process as follows:
Suppose the initial equilibrium income is given by Ye that corresponds to a trade balance equal to Ytb. With the rise in the net export demand, the aggregate demand curve DD shifts upwards to DD' such that the new equilibrium is established at point E' and the equilibrium income rises to Y'.
In the lower panel due to the fall in the imports, the net export rises and the net export curve shifts upwards from NX to NX'. At the new level of income, the net exports is represented by the vertical distance AE' which are necessarily positive (because the total demand curve DD' lies above the aggregate demand curve AD).
Thus, with a fall in the imports, there is a trade surplus. This trade surplus is represented in the lower panel by the vertical length DF.
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| Output | 1 | 2 | 3 | 4 | 5 | 6 |
| Marginal Cost (₹) | 9 | 7 | 2 | 4 | 8 | 12 |
| (Rs. in crores) | ||
| 1 | Interest. | 150 |
| 2 | Rent. | 250 |
| 3 | Government final consumption expenditure. | 600 |
| 4 | Private final consumption expenditure. | 1200 |
| 5 | Profits. | 640 |
| 6 | Compensation of employees. | 1000 |
| 7 | Net factor income to abroad. | 30 |
| 8 | Net indirect taxes. | 60 |
| 9 | Net exports. | (-)40 |
| 10 | Consumption of fixed capital. | 50 |
| 11 | Net domestic capital formation. | 340 |