{"id":38749,"date":"2018-12-13T17:54:34","date_gmt":"2018-12-13T12:24:34","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=38749"},"modified":"2018-12-13T17:54:34","modified_gmt":"2018-12-13T12:24:34","slug":"where-is-indias-current-account-deficit-headed","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/where-is-indias-current-account-deficit-headed\/","title":{"rendered":"Where is India\u2019s current account deficit headed"},"content":{"rendered":"<p><a href=\"https:\/\/www.livemint.com\/Politics\/CKdhPGEUkftmrpGUnDxvAN\/Where-is-Indias-current-account-deficit-headed.html\">Where is India\u2019s current account deficit headed<\/a><\/p>\n<p><strong>News<\/strong>:<\/p>\n<p>India\u2019s current account deficit (CAD) widened to a four-year high of 2.9% of gross domestic product (GDP) in the July-September period, up from 2.4% in April-June this year.<\/p>\n<p><strong>Facts:<\/strong><\/p>\n<p><strong>Current Account Deficit<\/strong><\/p>\n<ul>\n<li>Current account measures the flow of goods, services and investments into and out of the country. We run into a deficit if the value of the goods and services we import exceeds the value of those we export.<\/li>\n<\/ul>\n<p><strong>Components<\/strong><\/p>\n<ul>\n<li>The largest component of a current account deficit is the trade deficit. That&#8217;s when the country imports more goods and services than it exports.<\/li>\n<li>The second largest component is a deficit in net income. That&#8217;s when foreign investment income exceeds the savings of the country&#8217;s residents.<\/li>\n<li><strong>Net income<\/strong> is measured by the following four things.\n<ul>\n<li>Payments made to foreigners in the form of dividends of domestic stocks.<\/li>\n<li>Interest payments on bonds.<\/li>\n<li>Wages paid to foreigners working in the country.<\/li>\n<li>Direct transfers, mostly money foreign residents send back to their home countries. It also includes government grants to foreigners.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>Why does CAD matter<\/strong><\/p>\n<ul>\n<li>Current account balance <strong>measures the external strength or weakness of an economy<\/strong>.<\/li>\n<li>A current account surplus implies the country is a net lender to the rest of the world, while a deficit indicates it is a net borrower.<\/li>\n<\/ul>\n<p><strong>Why is CAD rising?<\/strong><\/p>\n<ul>\n<li>Tensions in the Gulf region, US sanctions on Iran and the instability in key oil exporting nation Venezuela pushed global crude prices<\/li>\n<li>India being a net importer of crude oil, weakening rupee has made imports of crude oil costlier.<\/li>\n<li>The China-US trade war hampering export growth, while rising investment demand will lead to more imports. This may further widen CAD in FY19.<\/li>\n<\/ul>\n<p><strong>Consequences of High CAD<\/strong><\/p>\n<ul>\n<li>In the short-run, a current account deficit is helpful to the debtor nation. Foreigners are willing to pump capital into it. That drives economic growth beyond what then country could manage on its own.<\/li>\n<li>The national currency loses value relative to other currencies. That lowers the value of the assets in the foreign investors&#8217; strengthening currency.<\/li>\n<li>It further depresses investor demand for the country&#8217;s assets. This can lead to <strong>a tipping point<\/strong> where investors will dump the assets at any price (Foreign investors withdraw funds, bond yields rise)<\/li>\n<li>A higher CAD will put the rupee under pressure and may raise the cost of overseas borrowing.<\/li>\n<li>Depleting foreign exchange reserves could raise CAD further.<\/li>\n<\/ul>\n<p><strong>Why is a high CAD cause for concern for India?<\/strong><\/p>\n<ul>\n<li>High CAD will be financed through a mix of foreign direct investment (FDI), portfolio flows and forex reserves management.<\/li>\n<li>While FDI flows rose in recent years, a strong dollar and tighter global financial conditions have put more pressure on portfolio investments. The net outflow of portfolio investments in Q2FY19 was $2.4 billion.<\/li>\n<li>Based on India\u2019s historical cash flows and capital inflow curbs, global markets might not be able to finance a CAD above 3% of GDP, as per International Monetary Fund.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Where is India\u2019s current account deficit headed News: India\u2019s current account deficit (CAD) widened to a four-year high of 2.9% of gross domestic product (GDP) in the July-September period, up from 2.4% in April-June this year. Facts: Current Account Deficit Current account measures the flow of goods, services and investments into and out of the&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/where-is-indias-current-account-deficit-headed\/\">Continue reading <span class=\"screen-reader-text\">Where is India\u2019s current account deficit headed<\/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-38749","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":83,"cached_at":""},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/38749","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=38749"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/38749\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=38749"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=38749"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=38749"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}