Current Account Deficit (CAD)
Context:
- The Finance Ministry has asserted that the current account deficit (CAD) deteriorate this year mainly due to rising trade deficits.
What is CAD?
- A current account deficit occurs when the total value of goods and services a country imports exceeds the total value of goods and services it exports.
- Whereas a fiscal deficit is the budget shortfall, in CAD a country is importing more than the value of its exports.
Background:
- The authorities are facing the challenge to continue to walk the tightrope of balancing inflation and growth concerns.
- The ministry has mentioned that increasing Gold imports has exerted pressure on the Current Account Deficit.
- The ministry has also warned that without sustained efforts to reduce the prices of food and energy commodities then India’s CAD will deteriorate in 2022-23 on account of costlier imports and tepid exports
Balance of Payments:
The two main components to calculate the Balance of Payment(BoP) of a country are:
-
Current Account –
- It shows the value of imports and exports of the visibles (merchandise or goods) and also the invisibles (non-merchandise), it includes the services, transfers and income.
-
Capital Account –
- It contains the income and the capital expenditure of the country.
- It shows the total flow of investment from both the private and the public players.
- It includes inflows from Foreign Direct Investment, Foreign Portfolio Investment and the external commercial borrowings.
Source The Hindu
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