{"id":32807,"date":"2023-02-17T12:35:17","date_gmt":"2023-02-17T07:05:17","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=32807"},"modified":"2025-04-19T16:14:59","modified_gmt":"2025-04-19T10:44:59","slug":"factors-behind-moderating-cad","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/factors-behind-moderating-cad\/","title":{"rendered":"Factors behind moderating CAD"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>Why in news?<\/strong><\/li>\n<li><strong>What is Current Account Deficit (CAD)?<\/strong><\/li>\n<li><strong>What is the significance of CAD?<\/strong><\/li>\n<li><strong>What are the causes of Current Account Deficit (CAD)?<\/strong><\/li>\n<li><strong>What is the level of CAD in India?<\/strong><\/li>\n<li><strong>What are the factors responsible for moderating CAD?<\/strong><\/li>\n<li><strong>How will moderating CAD impact the market?<\/strong><\/li>\n<li><strong>What is the growth outlook of Indian economy?<\/strong><\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>Why in news?<\/strong><\/h2>\n<ul>\n<li>There are indications that the current account deficit (CAD) will moderate despite the global slowdown triggered by the rising inflation and interest rates.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What is Current Account Deficit (CAD)?<\/strong><\/h2>\n<ul>\n<li>The current account deficit is a measurement of a country\u2019s trade where the value of the goods and services it imports exceeds the value of the products it exports.<\/li>\n<li>The current account includes net income, including interest and dividends, and transfers, like foreign aid.<\/li>\n<li>It represents a country\u2019s foreign transactions and, like the capital account, is a component of a country\u2019s balance of payments (BOP).<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>What is the significance of CAD?<\/strong><\/h2>\n<ul>\n<li>CAD and the fiscal deficit together make up the twin deficits \u2013 the enemies of the stock market and investors.<\/li>\n<li>If the current account shows surplus, that indicates <u>money is flowing into the country<\/u>, boosting the foreign exchange reserves and the value of rupee against the dollar.<\/li>\n<li>While an existing deficit can imply that a country is spending beyond its means, having a current account deficit is not inherently disadvantageous.\n<ul>\n<li>If a country uses external debt to finance investments that have higher returns than the interest rate on the debt, the country can remain solvent while running a current account deficit.<\/li>\n<li>If a country is unlikely to cover current debt levels with future revenue streams, however, it may become insolvent.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>What are the causes of Current Account Deficit (CAD)?<\/strong><\/h2>\n<p>\u00b7\u00a0\u00a0<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/lh3.googleusercontent.com\/jP7OsHKpQTCK618uTnXn8dqZwe_ubBSPeeQfdtoFvlrYLJTYz4zjCsKq6CCknTUYSjAjY9h1T73ocdZzRB0f9jWh9g-vSTX7YV9OhUZLqoxm6_-coybGIj6VU5Z4JBAuY2xtYvlqtIp8HX6kOcAoVP8\" alt=\"\" \/><\/p>\n<p><strong>\u00a0<\/strong>Image Caption: Causes of CAD<\/p>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>What is the level of CAD in India?<\/strong><\/h2>\n<ul>\n<li>According to the RBI, the CAD was at $36.4 billion for the quarter ending September 2022 and is expected to moderate in the second half of 2022-23.\n<ul>\n<li>CAD for the first half of 2022-23 stood at 3.3% of GDP.<\/li>\n<\/ul>\n<\/li>\n<li>The situation has shown improvement in Q3:2022-23 as imports moderated in the wake of lower commodity prices, resulting in narrowing of the merchandise trade deficit.<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>What are the factors responsible for moderating CAD?<\/strong><\/h2>\n<ul>\n<li>The moderation in CAD was aided by:\n<ul>\n<li>the fall in commodity prices,<\/li>\n<li>rising workers remittances and services exports, and<\/li>\n<li>abatement of selling pressure by foreign investors.<\/li>\n<\/ul>\n<\/li>\n<li>Recently, there has been sharp drop in imports which also led to the moderation of CAD. This sharp decline in imports was due to:\n<ul>\n<li>Non-oil imports falling, mainly due to a price impact;<\/li>\n<li>Softening in domestic demand post the festive season;<\/li>\n<li>Seasonal impact of the Chinese New Year holidays.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>How will moderating CAD impact the market?<\/strong><\/h2>\n<ul>\n<li>While rising CAD raises concerns among investors as it hurts the currency and thereby the inflow of funds into the markets, a notable decline in CAD in January has improved market sentiments.<\/li>\n<li>Experts say that CAD is very important for the currency.\n<ul>\n<li>The value of an economy hinges a lot on the value of its currency and thereby, it also supports the equity markets by keeping the fund flow intact.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>What is the growth outlook of Indian economy?<\/strong><\/h2>\n<ul>\n<li><strong>Capital inflows are expected to increase<\/strong>\n<ul>\n<li>There is a perception in the markets that capital flows could come under some pressure with China\u2019s reopening.<\/li>\n<li>However, inflows are expected to increase to the economy on the whole as India is expected to witness one of the highest growth rates among large economies.<\/li>\n<li>At a time when the economies of many developed markets are expected to take a hit, the RBI has projected the GDP growth for the next fiscal (FY2024) at 6.4%.<\/li>\n<li>The Union Budget has indicated a capital expenditure of Rs 10 lakh crore (over $ 120 billion).<\/li>\n<li>Moreover, with the rise in interest rates in India after the RBI hiked the repo rate by 250 basis points to 6.50%, non-resident Indian deposits, remittances, and FPI investment in debt are expected to rise further.<\/li>\n<li>NRI deposits had increased by $3.62 billion to $134.49 billion in the April-November period of 2022.<\/li>\n<\/ul>\n<\/li>\n<li><strong>There is optimism among global investors about India<\/strong>\n<ul>\n<li>The fundamentals around growth are significant &#8211; young population, 100s of millions of people speaking English and India has more engineers than anywhere else in the world.<\/li>\n<li>India has a government now that is oriented towards growth. As more infrastructure comes into the country, it will continue to grow at a much faster rate than the rest of the world.<\/li>\n<li>Hence, global investors see tremendous opportunity in India.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1)<\/strong>\u00a0<strong>What is Fiscal Deficit?<\/strong><\/h3>\n<p><strong>\u00a0<\/strong>When the government spends more than its total income, such a situation is called a fiscal deficit. It is calculated by subtracting the total income from the total expenditure and is either expressed in absolute terms or as a percentage of the GDP (Gross Domestic Product).<\/p>\n<p><strong>\u00a0<\/strong><\/p>\n<h3><strong>Q2)\u00a0What Is the Balance of Payments?<\/strong><\/h3>\n<p><strong>\u00a0<\/strong>The balance of payments (BOP) is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time.<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/factors-behind-moderating-cad-how-it-will-impact-markets-8449973\/#:~:text=The%20moderation%20in%20CAD%2C%20expected,the%20pressure%20off%20the%20currency.\" target=\"_blank\" rel=\"nofollow noopener\"><u>Factors behind moderating CAD, how it will impact markets<\/u><\/a>\u00a0|\u00a0<a href=\"https:\/\/www.investopedia.com\/terms\/c\/currentaccountdeficit.asp\" target=\"_blank\" rel=\"nofollow noopener\"><u>Investopedia<\/u><\/a>\u00a0|\u00a0<a href=\"https:\/\/www.business-standard.com\/about\/what-is-current-account-deficit-cad\" target=\"_blank\" rel=\"nofollow noopener\"><u>Business Standard<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>CAD is a measurement of a country\u2019s trade where the value imports exceed the value of exports.<\/p>\n","protected":false},"author":5,"featured_media":32808,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-32807","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/32807","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=32807"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/32807\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/32808"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=32807"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=32807"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=32807"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}