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Current Account Deficit Narrows
Why is it in the news?
- According to the RBI dat, the current account deficit (CAD) narrowed to 0.9 per cent of GDP or USD 6.3 billion in the July-September quarter.
- The CAD was 2.9 per cent or USD 19 billion in same period last year.
More in the news
- Cause:
(1) The contraction in the CAD was primarily on account of a lower trade deficit at USD 38.1 billion as compared with USD 50 billion a year ago.
(2) Trade deficit shrank to USD 84.3 billion in the first half of FY2019-20 from USD 95.8 billion last year.
- What is CAD?
(1) 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.
(2) It is a component of a country’s balance of payments.
(3) The current account includes net income, such as interest and dividends, and transfers, such as foreign aid.
(4) While a current account deficit can imply that a country is spending “beyond its means," having a current account deficit is not inherently disadvantageous.
(5) 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.