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First quarter CAD at 2.4% of GDP
Why in the news ?
- As per the data released by RBI, India’s current account deficit (CAD) stood at $15.8 billion (2.4 per cent of GDP) in the June quarter of 2018-19 compared with $15 billion (2.5 per cent of GDP) in the same period of last year.
Details
- Higher trade deficit at $45.7 billion as compared with $41.9 billion a year ago.
- Net services receipts increased by 2.1 per cent on a y-o-y basis mainly on the back of a rise in net earnings from software and financial services.
- According to the RBI, private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $18.8 billion, increasing by 16.9 per cent from their level a year ago.
- In the financial account, net foreign direct investment at $9.7 billion in Q1 of 2018-19 was higher than $7.1 billion in the year-ago period.
- Portfolio investment recorded net outflow of $8.1 billion in the first quarter as compared with an inflow of $12.5 billion in last year on account of net sales in both the debt and equity markets.
- The foreign exchange reserves in nominal terms (including valuation effects) decreased by $18.8 billion during April-June 2018 as against an accretion of $16.6 billion in the preceding year.
Concept
- 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.