Current Account – UPSC Prelims

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.

net income,

interest and dividends

transfers such as foreign aid, remittances, donations etc.

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.

It means the value of imports of goods/services/investment incomes is greater than the value of exports.

It is sometimes informally referred to as a trade deficit.

The major contributor to India’s Current Account Deficit (CAD) has been imports of Gold and Crude Oil.

Sustained period of CAD has led to currency depreciation, high rates of inflation which further effects the incoming foreign investment.

Fall in gold imports and lower oil import bill in recent time led to shrinkage in the deficit.

A current account surplus means an economy is exporting a greater value of goods and services than it is importing.

There is no hard and fast rule about what will happen if a country has a current account surplus. It depends on the size of the current account and the reasons for the current account surplus.

In the case of India, slow growth in imports, reflecting the persisting weakness in the investment sentiment, is the prominent reason behind this.