DMPQ- What do you mean by Current Account Deficit ?

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The current account shows the records of exports and imports of both the material goods and services of a country with the rest of the world. Export and import of goods are totally different from the export and import of services. While goods are tangible and called as merchandise or visible trade, and of which records are available at the ports. Services are non-tangible and called as invisible trade the records of which are not available at the ports. In fact, the current account deficit is the difference between the visible and invisible exports and visible and invisible imports of a nation with the rest of the world. Shipping, banking, insurance, investment and compensation of employees are main items which make the parts of services that are exported and imported by a nation with the foreign countries. When our receipts are less than the payments which we make for the purchase of both the goods and services we face the deficit in our current account. As per the latest data, India’s current account deficit has increased to 15.8 billion US $ or 2.4 percent of the GDP. The drastic decrease in the exports has added fuel to troubled waters. They say that unnecessary delay in the clearance and approval of various development proposals too has aggravated the situation and we face the problem of dollar crunch. Consequently we are forced to spend from the foreign exchange reserves for making the payments for all the imports.

What makes the current account deficit more distressing is the ever-increasing import bill of oil and gold. The heavy purchase of gold and crude oil puts heavy pressure on the foreign exchange reserves and finally our current account deficit goes on worsening. That is why there is unprecedented rise in the demand for the dollars which results in the appreciation of its value and finally the value of rupee weakens.

 

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