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What is Current Account Deficit?
India is better placed than many of its peers after the American central bank - the US Federal Reserve - raised its key interest rates, according credit rating agency Fitch Ratings. According to it, India\'s external balances have significantly improved since mid-2013, with foreign exchange reserves rising by some $65 billion to $353 billion as of November 2015 and the current account deficit narro
India is better placed than many of its peers after the American central bank - the US Federal Reserve - raised its key interest rates, according credit rating agency Fitch Ratings. According to it, India's external balances have significantly improved since mid-2013, with foreign exchange reserves rising by some $65 billion to $353 billion as of November 2015 and the current account deficit narrowing. India is also less dependent than several of its peers on commodity exports, and has thus not been negatively affected by the global rout in commodity prices.
Current Account Deficit is a measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports. A country can reduce its current account deficit by increasing the value of its exports relative to the value of imports.
It can place restrictions on imports, such as tariffs or quotas, or it can emphasise policies that promote exports, such as import substitution industrialisation or policies that improve domestic companies' global competitiveness. The country can also use monetary policy to improve the domestic currency’s valuation relative to other currencies through devaluation, since this makes a country’s exports less expensive, according to Investopedia.
India's current account deficit may narrow to 0.5 per cent of GDP in 2016 from 0.7 per cent in 2015 owing to lower commodity prices, particularly oil, says a report. "Given lower oil prices, we expect the current account deficit to narrow to 0.5 per cent of GDP in 2016 from 0.7 per cent in 2015, despite weak exports and strengthening domestic demand," the report by financial services major Nomura said.
According to official figures, exports contracted for the 13th month in a row in December 2015, as outward shipments shrank 14.75 per cent to $22.2 billion amid a global demand slowdown. Imports also plunged 3.88 per cent to $33.9 billion in December over the same month previous year.
However, gold imports shot up which increased the trade deficit to a 4-month high of $11.66 billion as against $9.17 billion recorded in December 2014. The CAD in the July-September quarter of current fiscal rose to $8.2 billion or 1.6 per cent of the GDP from 1.2 per cent or $6.1 billion in the April-June quarter.
