What is Current Account Deficit?

About Current Account Deficit:

  • The current account measures the flow of goods, services and investments into and out of the country.
  • There is a deficit in Current Account if the value of the goods and services imported exceeds the value of those exported.

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

Trade Gap= Exports – Imports

Significance of Current account Deficit:

  • 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 current account deficit indicates it is a net borrower.
  • For the Current Account Deficit in India, crude oil and gold imports are the primary reasons behind high CAD.
  • The Current Account Deficit could be reduced in India by boosting exports and curbing non-essential imports such as gold, mobiles and electronics.
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