Difference between the current and capital account

Source-This post on Difference between the current and capital account is based on the article “Current account deficit narrows to 1.2% of GDP at $10.5 billion in Oct-Dec: RBI” published in “The Indian Express” on 27th March 2024.

Why in the News?

Recently, RBI stated that current account deficit narrows to 1.2 % of GDP at $10.5 billion in Oct-Dec. In the second quarter of FY2024, the country CAD stood at $11.4 billion, or 1.3 per cent GDP.

Difference between the current and capital account

About Current Account:

1) It reflects the net income of a country.

2) It records transactions related to trade in goods and services, investment income, and unilateral transfers.

3) Its components include the balance of trade (exports and imports of goods), services, net investment income, and net cash transfers.

4) In case of Current account, a negative balance indicates higher imports than exports, while a positive balance shows higher exports.

5) Current account deficit is the difference between exports and imports of goods and services. It is a key indicator of the country’s external sector.

About Capital Account:

1) It reflects the net change in ownership of national assets.

2) It deals with the sources and application of capital, such as foreign direct investment, portfolio investment, and government loans.

3) It records the trading of foreign assets and liabilities, including investments, loans, and banking capital movements.

4) In case of capital account, a surplus indicates an inflow of money into the country, while a deficit indicates capital moving out of the country. 

UPSC Syllabus: Indian economy