News:According to Reserve Bank of India data,India’s current account deficit (CAD) has narrowed to 0.9% of GDP($ 6.3 billion).
Facts:
- The contraction in the current account deficit(CAD) was primarily on account of a lower trade deficit at USD 38.1 billion as compared to USD $50 billion a year ago.
- The private transfer receipts mainly representing remittances by Indians employed overseas has increased to $ 21.9 billion increasing by 5.2% from their level a year ago.
- However,economists have claimed that the improvement in current account deficit was not sustainable.
- This is because the trade deficit is lower primarily because imports have fallen at a faster rate than exports due to weak manufacturing activity and lower imports of raw materials and capital goods.
About Current Account Deficit:
- The current account measures the flow of goods, services and investments into and out of the country.
- There is a deficit in Current Account if the value of the goods and services imported exceeds the value of those exported.
Current Account Deficit = Trade gap + Net current transfers + Net income abroad
Trade Gap= Exports – Imports
Significance of Current account Deficit:
- Current account balance measures the external strength or weakness of an economy.
- A current account surplus implies the country is a net lender to the rest of the world while a current account deficit indicates it is a net borrower.
- For the Current Account Deficit in India, crude oil and gold imports are the primary reasons behind high CAD.
- The Current Account Deficit could be reduced in India by boosting exports and curbing non-essential imports such as gold, mobiles and electronics.
