CAD to narrow, bolster rupee against global risks
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- The current account deficit (CAD) is an economic indicator that measures the difference between a country’s total value of imports of goods and services and its total value of exports of goods and services. In other words, it represents the balance of trade in goods and services, as well as net investment income and net transfers, between a country and the rest of the world.
Points to Ponder:
- Despite the fact that GDP growth declined to 4.4% in the third quarter (Q3) from 6.3% in the second (Q2), progress has continued throughout 2022–2023.
- The current account deficit is “set to narrow from year-beginning estimates,” the ministry said, noting the increase in net services exports, the moderation of crude prices, and the recent drop in demand for import-intensive spending as reasons.
- Conversely, if a country’s exports of goods and services exceed its imports, it will have a current account surplus, meaning that it is earning more from exports than it is spending on imports.
- A sustained current account deficit can indicate that a country is relying heavily on foreign borrowing to finance its spending and investment, which can lead to a buildup of foreign debt and potential financial instability. On the other hand, a current account surplus can indicate that a country is saving more than it is spending and investing domestically, which can lead to an accumulation of foreign assets and potential economic strength.