Current Account Deficit

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Overview:

According to State Bank of India, current account deficit likely to be lower at 3% for this fiscal as against the minimum consensus of 3.5%, citing rising software exports, remittances and a likely $5-billion jump in forex reserves via swap deals.

About Current Account Deficit:

  • Balance of Payments (BoP):
    • The Balance of payments (BoP) records the transactions in goods, services and assets between residents of a country with the rest of the world.
    • There are two main accounts in the BoP –
      • the current account and
      • the capital account.
    • Current Account:
      • The current account records exports and imports in goods and services and transfer payments.
      • Trade in services denoted as invisible trade (because they are not seen to cross national borders) includes both
        • factor income (payment for inputs-investment income, that is, the interest, profits and dividends on our assets abroad minus the income foreigners earn on assets they own in India) and
        • non-factor income (shipping, banking, insurance, tourism, software services, etc.).
      • Transfer payments are receipts which the residents of a country receive ‘for free’, without having to make any present or future payments in return. They consist of remittances, gifts and grants. They could be official or private.
      • The balance of exports and imports of goods is referred to as the trade balance.
      • Adding trade in services and net transfers to the trade balance, we get the current account balance.

Source : The Hindu