Context: RBI has reported that India’s current account deficit (CAD) of 2nd Quarter FY24 declined to $8.3 billion, which is 1% of the country’s Gross Domestic Product (GDP).
Latest Statistics on India’s Current Account Deficit
- Reason: The decline of the current account deficit in the Second Quarter of FY24 (July 2023 -September 2023) is due to the narrowing of the merchandise (goods) trade deficit to $61 billion from $78.3 billion in Q2 FY23 a year ago.
- Comparison: India’s current account deficit (CAD) declined to 1% of gross domestic product (GDP) in the second quarter, down from 1.1% in the preceding quarter, and 3.8% a year ago.
Other Indices in Q2 FY24
- Services Exports: It grew by 4.2% on a y-o-y basis on the back of rising exports of software, business and travel services.
- Private Remittances: It amounted to $28.1 billion, an increase of 2.6% from their levels during the corresponding period a year ago.
- FDI: Net Foreign Direct Investment witnessed an outflow of $0.3 billion as against an inflow of $6.2 billion in Q2 FY23.
- FPI: Foreign portfolio investment recorded net inflow of $4.9 billion, lower than $6.5 billion during Q2 FY23.
- Foreign Exchange Reserves: Addition of Foreign Exchange Reserves of $2.5 billion in Q2 FY24 as against a depletion of $30.4 billion in Q2 FY23.
About Current Account Deficit
- Definition: It is the difference between exports and imports of goods and services.
- It is a key indicator of the country’s external sector.
- Components: It is the sum of Balance of Trade (Export minus Imports of Goods and Services) + Net Factor Income from Abroad (Interest income and Dividends, etc) and Net Transfer Payments ( Eg- Foreign Aid)
- Formula: Current Account = Trade Balance+Net factor income+Net transfer payments
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About Balance of Payment (BoP)
- Definition: BoP is a bookkeeping system that summarises the country’s economic transaction with other countries of the world for a particular period.
- Impact: BoP keeps track of the trade and investments and transfers in a country with the rest of the world.
- Components: The BoP is composed of Capital and Current Accounts.
About Current Account
- Definition: The current Account is the account that records the goods exports and imports, as well as trade in services and transfer payments.
- Impact: The current account of a country keeps track of the country’s transactions with other countries.
- Components: The current account is made up of visible trade( Goods), invisible trade (Services), transfer payments, net factor income, and remittances.
About Capital Account
- Definition: Capital Account is the account that keeps track of Borrowing and Lending of Capital assets and non-financial assets between the countries.
- Impact: The capital account of a country keeps track of the country’s investment and loans with other countries.
- Components: The current account is made up of borrowings, lendings and investments.
Source: The Hindu
December 27, 2023