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Current account deficit shrinks
Why is it in the news ?
- As per the recent RBI data, the country’s current account deficit (CAD) narrowed to 2% of GDP, or $14.3 billion, in the first quarter.
- The CAD was 2.3% of GDP, or $15.8 billion, reported during the same period of the previous year.
More in the news
Possible factors behind the drop in CAD:
- The Invisible receipts (software receipts) have gone up.
- The private transfers have also gone up.
- Trade deficit has been lower due to lower crude oil prices.
- Net inflow on account of external commercial borrowings was $6.3 billion against an outflow of $1.5 billion a year ago.
- Net services receipts rose 7.3%, mainly on the back of a rise in net earnings from travel, financial services and telecommunications, computer and information services.
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 goods and services it exports.
- It is a component of a country’s balance of payments.
- The current account includes net income, such as interest and dividends, and transfers, such as foreign aid.
- 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
The Hindu.