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Current Account Deficit rises to 1.9 per cent for 2018 fiscal year
Why in the news ?
- As per the RBI data, India's current account deficit (CAD) jumped over three times to $48.7 billion, or 1.9 per cent of gross domestic product (GDP), in 2017-18, compared with $14.4 bn, or 0.6 per cent, in the previous financial year, driven by higher trade deficit.
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- The widening of the CAD was primarily on account of a higher trade deficit ($41.6 bn) brought about by a larger increase in merchandise imports relative to exports.
- According to the central bank, CAD for the quarter ended March 2018 was at $13 bn (1.9 per cent of GDP) as against $2.6 bn (0.4 per cent) in Q4 of 2016 -17.
- But it has moderated marginally from $13.7 bn (2.1 per cent of GDP) in the preceding quarter.
- In the fourth quarter, net services receipts increased by 8.8 per cent on a y-o-y basis mainly on the back of a rise in net earnings from software services and other business services.
- Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $18.1 bn, increasing by 15.1 per cent from their level a year ago.
- In the financial account, net foreign direct investment at $6.4 bn in Q4 of 2017-18 was higher than $5 bn in Q4 of 2016-17.
What is CAD ?
- The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods and services it exports.
- The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account.
- The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments.
- While a current account deficit can imply that a country is spending “beyond its means," having a current account deficit is not inherently disadvantageous. If a country uses external debt to finance investments that have a higher return than the interest rate on the debt, it can remain solvent while running a current account deficit.
Source
Indian Express.