Context:
India’s current account deficit (CAD) widened to $9.2 billion (1.1% of GDP) in the April-June quarter, from $1.3 billion (0.2% of GDP).
Key Details – Current Account Deficit
What is Current Account Deficit?
- It is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
What does the current account include?
- Net income, such as interest and dividends, and transfers, such as foreign aid etc.
What does the current account represent?
- It represents a country’s foreign transactions and, is a component of a country’s balance of payments (BOP).
What are the 2 parts of CAD?
- Trade account (Import and Export of goods): If a country imports more goods than it exports, it is said to have a trade account deficit.
- Invisible account (Import and export of services): If the net effect of a trade account and the invisibles account is a deficit, then it is called a current account deficit or CAD.
What are the impacts of CAD?
- A widening CAD tends to weaken the domestic currency because a CAD implies more dollars (or foreign currencies) are being demanded than rupees.
- Emerging economies often run surpluses, and developed countries tend to run deficits.
- CAD and fiscal deficit together make up twin deficits that can impact the stock market and investors.
- A lower CAD can boost investor sentiment and make the country’s currency more attractive to investors.
- A surplus in the current account indicates that money is flowing into the country, which can boost foreign exchange reserves and the value of the local currency.
Source: The Hindu
Previous Year Question
With reference to the international trade of India at present, which of the following statements is/are correct?
1. India’s merchandise exports are less than its merchandise imports.
2. India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
3. India’s exports of services are more than its imports of services.
4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:
[UPSC Civil Services Exam – 2020 Prelims]
(a) 1 and 2 only
(b) 2 and 4 only
(c) 3 only
(d) 1, 3 and 4 only
Answer: (d)
