{"id":35103,"date":"2018-10-31T15:15:57","date_gmt":"2018-10-31T09:45:57","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=35103"},"modified":"2018-10-31T15:15:57","modified_gmt":"2018-10-31T09:45:57","slug":"time-for-caution","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/time-for-caution\/","title":{"rendered":"Time for caution:\u00a0"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/todays-paper\/tp-opinion\/time-for-caution\/article19705839.ece\"><span style=\"font-weight: 400;\">Time for caution<\/span><\/a><span style=\"font-weight: 400;\">:\u00a0<\/span><\/p>\n<p><b>Context<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Last week, the current account deficit (CAD) widened to a four-year high of $14.3 billion in the first quarter of the current financial year, standing at 2.4% of gross domestic product, compared to 0.1% last year.<\/span><\/p>\n<p><b>Causes of widening Current Account Deficit<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The widening CAD was driven by a \u00a0number of factors:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Merchandise exports: One of the major reasons for the current deficit is the greater increase in merchandise imports than exports<\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Increase import of Gold:Imports increased because of a rise in demand for gold(almost threefold) due to the upcoming festive season and tweaks in trade pacts with countries such as South Korea<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Services -Fall in exports of Services due to domestic industry issues and increased protectionism worldwide.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Lower farm growth and government expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The prolonged effects of demonetisation.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Introduction of a new tax regime(Introduction of GST)<\/span><\/li>\n<\/ul>\n<p><b>Causes of a Surplus in Capital Account<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Foreign investors starved of yield have been stepping up their investments in India, which remains one of the few places offering higher yields.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> Compared to last year, net FDI almost doubled in the first quarter, while net portfolio investment jumped about six times. The strong inflow of foreign capital has also led to a significant increase in foreign reserve holdings, thanks to the Reserve Bank of India which has been busy buying dollars to weaken the rupee,while the rupee has appreciated by over 6% against the dollar this year.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> Low global oil prices over the last two years have also helped contain a good portion of its import bills.<\/span><\/li>\n<\/ul>\n<p><b>What could happen if the FED tightens it\u2019s policy?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">All this might change with the impending tightening of monetary policy by the U.S. Federal Reserve and other central banks and the end of the era of easy money policy.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> Emerging Asian markets have been the biggest beneficiaries of loose monetary policy in the West, so any change in stance would most definitely affect them.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Indian companies, for instance, have aggressively tapped into the market for rupee-denominated foreign debt, which can work against them if the flow of foreign capital turns volatile.<\/span><\/li>\n<\/ul>\n<p><b>Way forward<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A strong capital account surplus, \u00a0has helped the country pay for its import bills without much trouble<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In addition, the imports of Gold need to be checked. \u00a0Tweaks in FTA\u2019s \u00a0with foreign countries should be corrected to check illegal trade from third parties. The example of in the current scenario is that of the Illegal imports from South Korea that is not even amongst the world\u2019s major producers or exporters of gold and related products.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Effects of new tax regime should be carefully watched.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Incentives to exporters and increase in budget expenditure to their interest.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">India should be prepared for the impending tightening of \u00a0monetary policy regime in U.S. and other countries as India has survived the current deficit on account of a strong capital account surplus.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Also, India should seek to resolve the impending issues with other countries and organisations such as EU(regarding IPR regime and others) so that the India-EU FTA process could be hastened which could prove to be a major boon for services sector. Similarly, India\u2019s push for a Services pact along with a goods pact in RCEP is a Step in the right direction.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Time for caution:\u00a0 Context Last week, the current account deficit (CAD) widened to a four-year high of $14.3 billion in the first quarter of the current financial year, standing at 2.4% of gross domestic product, compared to 0.1% last year. Causes of widening Current Account Deficit The widening CAD was driven by a \u00a0number of&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/time-for-caution\/\">Continue reading <span class=\"screen-reader-text\">Time for caution:\u00a0<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-35103","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704750470},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/35103","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=35103"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/35103\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=35103"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=35103"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=35103"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}