Current account surplus moderates to $15.5 bn in Q2

Source: The Indian Express

News: The current account surplus moderated to $15.5 billion (2.4% of GDP) in the quarter ended September of 2020-21 from $19.2 billion (3.8% of GDP) in the first quarter this fiscal.The current account saw a deficit of $7.6 billion(1.1%) in the year-ago quarter.

Facts:

  • Why has current account surplus narrowed? The narrowing of the current account surplus in Q2 of FY21 was on account of a rise in the merchandise trade deficit to $14.8 billion from $10.8 billion in the preceding quarter.
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Current Account:

  • What is the Current Account? Current account maintains a record of the country’s transactions with other nations, in terms of trade of goods and services, net earnings on overseas investments and net transfer of payments over a period of time, such as remittances.
    • This account goes into a deficit when money sent outward exceeds that coming inward.
  • What does Current account constitute? The current account constitutes net income, interest and dividends and transfers such as foreign aid, remittances, donations among others. It is measured as a percentage of GDP.

Current Account = Trade gap + Net current transfers + Net income.       abroad

  • Why does Current account matter? Current account balance measures the external strength or weakness of an economy.
  • 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.
  • A country with rising Current Account Deficit(CAD) shows that it has become uncompetitive, and investors are not willing to invest there. They may withdraw their investments.
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