The current account deficit was 3.8 per cent of GDP or $30.9 billion in July-September quarter in 2022-23, according to central bank data.
In the September 2023 quarter, India’s current account deficit (CAD), indicating the surplus of imports over exports, narrowed to 1% of the gross domestic product (GDP). The deficit decreased to $8.3 billion from $9.2 billion in the June 2023 quarter and significantly dropped from $30.9 billion (3.8% of GDP) compared to the same period last year.
what is current account of a country
The current account of a country is a component of its balance of payments, which is a record of all economic transactions between the residents of that country and the rest of the world over a specific period, usually a year. The current account is one of the primary segments of the balance of payments, and it includes the following key elements:
- Trade Balance: This is the difference between the value of a country’s exports (goods and services sold to other countries) and imports (goods and services purchased from other countries).
- Services Balance: This accounts for the value of services traded internationally, such as transportation, tourism, and business services.
- Income Balance: This includes earnings from investments abroad (such as dividends and interest) and payments made to foreign investors.
- Current Transfers: This category involves transfers of money between countries that do not correspond to the exchange of goods or services. It includes items like foreign aid, grants, and remittances.
The current account, therefore, provides a comprehensive picture of a country’s economic interactions with the rest of the world. If a country has a surplus in its current account, it means that it is exporting more goods and services, receiving more income from investments abroad, and experiencing net positive transfers. Conversely, a deficit indicates that a country is importing more than it is exporting and paying out more income to foreign investors than it is receiving.
A sustained deficit or surplus in the current account can have implications for a country’s overall economic health and its currency value.
What we can understand or what can Current Account of a country tell us
The current account of a country provides valuable insights into its economic health and international financial position. By examining the components of the current account, analysts and policymakers can glean important information about various aspects of a country’s economic performance.
Here are some key insights that can be obtained by looking at the current account:
- Trade Balance: The trade balance, which is part of the current account, reveals whether a country is a net exporter or importer of goods and services. A trade surplus (exports > imports) can be an indicator of economic competitiveness, while a trade deficit (imports > exports) may suggest a reliance on foreign goods.
- Competitiveness: A consistent surplus or deficit in the trade balance can indicate the competitiveness of a country’s industries. A surplus may suggest that a country’s goods and services are in high demand globally, while a deficit may imply challenges in competitiveness.
- Foreign Investment and Income: The income balance in the current account reflects the net earnings from investments abroad and payments made to foreign investors. A surplus in this component can indicate that a country is earning more from its foreign investments than it is paying out.
- Savings and Investment: The current account is linked to a country’s savings and investment dynamics. A surplus may suggest that a country is saving more than it is investing domestically, while a deficit may indicate higher domestic investment than savings.
- Currency Impact: A sustained deficit in the current account can put pressure on a country’s currency. This is because a deficit often means the country needs to borrow from abroad to finance the shortfall, potentially leading to a depreciation of the national currency.
- External Debt: A country running a current account deficit may accumulate external debt to bridge the gap. Monitoring the trend in external debt levels is crucial for assessing a country’s financial stability.
- Global Economic Relationships: Changes in the current account can reflect shifts in global economic relationships. For example, a sudden improvement in a country’s current account may be linked to increased global demand for its exports or changes in exchange rates.
In summary, the current account provides a comprehensive snapshot of a country’s economic interactions with the rest of the world. Analyzing the current account helps policymakers, economists, and investors understand the overall economic health, competitiveness, and financial position of a nation in the international arena.