Current Account Deficit UPSC NOTE

 Why in News

  • Services exports grew by 4.2% on a y-o-y basis on the back of rising exports of software, business and travel services; net services receipts increased both sequentially and on a y-o-y basis, according to the latest data published by RBI.

  • India’s current account deficit declined to $8.3 billion, which is 1% of the country’s GDP in the second quarter of FY24 owing to a “narrowing of merchandise trade deficit” according to the RBI’s latest data.

What is current account deficit

  • A current account deficit is a measure of a country's international trade and investment activity, specifically indicating that the value of goods and services it imports exceeds the value of those it exports. 

  • In simpler terms, a country is spending more on foreign goods and services than it earns from exporting its own.

  • Trade balance: This is the difference between the value of exports and imports of goods and services.

    • Income balance: This includes factors like investment income, dividend payments, and worker remittances.

  • Current transfers: This refers to unilateral transfers like foreign aid and migrant remittances.

  • Interpretation: A deficit means the country is net importer and relying on foreign investment and loans to finance its spending. A surplus indicates the country is a net exporter and investing its savings abroad.

    • Low domestic savings: If people save less within the country, there's less money available for domestic investment, leading to increased reliance on foreign investment.

    • High investment demandStrong economic growth often triggers higher investment needs to meet demand, which might not be fully funded by domestic savings.

    • Exchange rate fluctuations: A weaker currency can make imports cheaper, boosting demand but also making exports less competitive.

    • Significance: While a current account deficit isn't inherently bad, its sustainability and potential risks must be considered. Large and persistent deficits can:



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Current Account Deficit UPSC NOTE
Current Account Deficit UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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