Current Account

Deficit

India and other developing nations

Submitted byGurpreet Singh(15)

Neha Diwakar(20)
Shweta Dixit(35)
Udbhav Mehta(37)

ACKNOWLEDGEMENT

It is our duty to record our sincere thanks and

deep sense of gratitude to our respected
teacher Dr. Amiya Mahapatra for his
valuable guidance, interest and constant
encouragement for the fulfilment of the
project.
Finally, yet importantly, we would like to
express our heartfelt thanks to our beloved
parents for their blessings, our team
mates/classmates for their contribution and
wishes for the successful completion of this
project.

Content
1.Introduction
2.Current account
3.Deficit
4.Balance of payment
5.Measurement of current account for a country
6.Indias current account situation
7.Import policies
8.Export policies
9.Graphical representations
10.Inference

Current Account Deficit

Current Account Deficit
Current account deficit occurs when a country's total imports of goods, services and
transfers is greater than the country's total export of goods, services and transfers.
This situation makes a country a net debtor to the rest of the world.
CURRENT ACCOUNT DEFICIT = (TOTAL IMPORTS) (TOTAL EXPORTS)
Where Total Imports > Total Exports

A substantial current account deficit is not necessarily a bad thing for certain
countries. Developing counties may run a current account deficit in the short term
to increase local productivity and exports in the future.

Current account
The difference between a nation's total exports of goods, services and transfers,
and its total imports of them. Current account balance calculations exclude
transactions in financial assets and liabilities.

Deficit:

Deficit is the amount by which expenses exceed income or costs outstrip

revenues.
Deficit essentially refers to the difference between cash inflows and outflows.
It is generally prefixed by another term to refer to a specific situation - trade
deficit or budget deficit, for example. Deficit is the opposite of "surplus" and
is synonymous with shortfall or loss.
For example, if a nation has exports of $2 billion and imports of $3 billion in a
given year, it would have a trade deficit of $1 billion for that year. Similarly, a
government that has revenues of $10 billion and expenditures of $12 billion
in a particular year would have a budget deficit of $2 billion in that period.
Large and growing deficits over prolonged periods of time are unsustainable
in most cases, irrespective of whether they are incurred by an individual,
corporation or government.
Huge deficits over a number of years can wipe out equity for an individual or
a company's shareholders, eventually leaving bankruptcy as the only option.
Although sovereign governments have a much greater capacity to sustain
deficits, negative effects in such cases include lower economic growth rates
(in case of budget deficits) or a plunge in the value of the domestic currency
(in case of trade deficits).

Balance of payment:

A record of all transactions made between one particular country and all
other countries during a specified period of time.
BOP compares the dollar difference of the amount of exports and imports,
including all financial exports and imports. A negative balance of payments
means that more money is flowing out of the country than coming in, and
vice versa.
Balance of payments may be used as an indicator of economic and political
stability. For example, if a country has a consistently positive BOP, this could
mean that there is significant foreign investment within that country. It may
also mean that the country does not export much of its currency.
The current account is one of the two primary components of the , the
other being . It is the sum of the balance of trade (i.e., net revenue on
exports minus payments for imports), factor income (earnings on foreign
investments minus payments made to foreign investors) and cash transfers.

Current Account Surplus

Positive net sales abroad generally contribute to a current account surplus.

Because exports generate positive net sales, and because the trade balance
is typically the largest component of the current account, a current account
surplus is usually associated with positive net exports

Current Account Deficit

Negative net sales abroad generally contribute to a current account deficit.

Measurement of current account for a country

The current account is calculated by adding up the 4 components of current
account: Goods, services, income and current transfers

1. Goods
When a transaction of certain good's ownership from a local country to a foreign
country takes place, this is called an "export." The other way around, when a good's
owner changes to a local inhabitant from a foreigner, is defined to be an "import." In
calculating current account, exports are marked as credit (the inflow of money) and
imports as debit. (the outflow of money.)

2. Services
When an intangible service (e.g. tourism) is used by a foreigner in a local land and
the local resident receives the money from a foreigner, this is also counted as an
export, thus a credit.

3. Income
A credit of income happens when an individual or a company of domestic nationality
receives money from a company or individual with foreign identity. A foreign
company's investment upon a domestic company or a local government is also
considered as a credit.

4. Current Transfers
Current transfers take place when a certain foreign country simply provides
currency to another country with nothing received as a return. Typically, such
transfers are done in the form of donations, aids, or official assistance.

The formula

When CA is the current account,

X and M the export and import of goods and services respectively,
NY the net income from abroad, and
NCT the net current transfers.

Current Account Deficit-Report

What is Indias current account situation?
India has a current account deficit; that is, its imports exceed exports. Current
account deficit in India is reported by the Reserve Bank of India. Indias CAD for the
second quarter ended September 2012 rose sharply to $22.3 billion from $18.9
billion in Q2 of a year ago higher pace of imports and moderating exports growth.
Every year India imports crude oil and gold worth billions of dollar and that disturbs
the whole balance. Indias current account deficit has increased due to weak
exports, heavy gold and crude oil imports.
More foreigners invest in India compared to Indians investing abroad. Rajiv Gandhi
Equity saving scheme was an initiative of the finance ministry, to make Indians
reduce gold-purchase and use that money to invest in capital market. The CAD
increased to 5.4% of gross domestic product for Q2 of FY2012-13 from 4.2% for Q2
FY11-12.
The rise in the current account deficit was mainly on account of a widening trade
deficit and a slowdown in inward remittances from overseas Indians. The increasing
CAD has become a major constraint on easing monetary policy. With the CAD

turning out to be a record high of 5.4% of GDP in the second quarter of 2012-13,
further caution is warranted while framing monetary and fiscal policies, according to
Reserve Bank of India (RBI).
Implications of a large deficit
In January 2013, the finance ministry said that Indias record current account deficit
is worrying. Deficit on the current account means a net outflow of foreign
exchange. In Indias case, this means a dollar outgo. Such a deficit could drain the
countrys forex reserves if inflows to make up the deficit do not materialise.
Therefore, a country with a current account deficit has to attract capital flows, which
could be in the form of, say, foreign direct investment, to meet the shortfall.
But when capital flows are insufficient to meet the deficit, the countrys currency
starts to depreciate on concerns that it may find it difficult to meet its international
commitment or fund its current purchases. A current account deficit in excess of
2.5% of GDP is seen as worrisome in case of India.

Planning Commission Deputy Chairman Montek Singh Ahluwalia on Saturday said

for the quarter ended June 2013, the countrys current account deficit (CAD) was
likely to be much higher than 3.7 per cent of gross domestic product (GDP),
projected for the entire financial year.
My expectation is we wont see any real improvement till the end of the second
quarter (July-September) this year, Ahluwalia said at a press conference. He,
however, added containing CAD at 3.7 per cent this financial year was possible
because of the curtailment in gold imports.
In 2012-13, CAD stood at a record $88 billion, or 4.8 per cent of GDP. Finance
Minister P Chidambaram has said this financial year, it would be restricted to $70
billion.

CAD in Q1 to be much higher than 3.7%: Montek

Large fiscal
deficit,

CAD impacted market confidence: IMF

Indias large fiscal and current account deficits have impacted market confidence;
the IMF has said emphasising that the rupee decline posed both challenges and
opportunities for the country.
The current situation presents a challenge, obviously, to the government of India,
but also an opportunity for the government to continue with its policy efforts on a
variety of fronts, International Monetary Fund (IMF) spokesman Gerry Rice said.
Rice said the combination of large fiscal deficit and Current Account Deficit (CAD),
reliance on portfolio inflows, among other things, have affected market confidence.
But may be just stepping back on the situation in India, the combination of large
fiscal and CAD, high and persistent inflation, sizable unhedged corporate foreign
borrowing and reliance on portfolio inflows are longstanding vulnerabilities that

have now been elevated as global liquidity conditions tighten, and this clearly has
affected market confidence, Rice said in response to a question.
The CAD, which is the difference between the inflow and outflow of foreign
exchange, scaled to a record high level of $ 88.2 billion or 4.8 per cent of GDP in
2012-13. The government expects to bring it down to $ 70 billion this year.
With various fiscal tightening measures, the government was able to restrict fiscal
deficit to 4.9 per cent of GDP in 2012-13.
Fiscal deficit reaches nearly 63% of full-year target: Govt

Net tax receipts for the first four months of the current fiscal year to March

2014 touched Rs 145,000 crore, while total expenditure was Rs 521,000

crore.
India's fiscal deficit during the April-July period was Rs 341,000 crore, or 62.8

percent of the full-year target, government data showed on Friday.

Net tax receipts for the first four months of the current fiscal year to March

2014 touched Rs 145,000 crore, while total expenditure was Rs 521,000

crore.
The country's fiscal deficit during the 2012/13 fiscal year ending March fell to
4.9 percent of the country's gross domestic product, compared with 5.8
percent a year ago.

Comparison of Current Account Deficit (20082013):

IMPORT POLICIES

After the liberalization of import policy , almost all the items are allowed to import in
India. There is only a very short list of items either banned for import, or those
required to be imported through government agencies, or under special license.
Import duties, which were earlier prohibitively high at levels of 180% or even more,
have been now decreased to as low as 15% for some items.
For the betterment of the Indian import and also export, the government has
introduced Exim Policy in India for a five year period. All the items that can be
freely imported , items that are prohibited or items that are restricted are
mentioned in this list.
The short list of banned items that cannot be imported in India includes beef and
tallow, fats and oils,animalrennet and wild animals, including their parts and
ivory.
List of items that are canalised can only be imported by the government of India
or its designated agencies. Canalised list of items include petroleum products,
fertilisers, pulses, cereals and spices. Items on the restricted list (requiring special
licence) include safety and security related products, plants and animals,
insecticides and pesticides, and other items that could have an impact on security,
health and environment.

IMPORT POLICIES REGARDING FOOD PRODUCTS

According to Food Safety & Standards Act, 2006 the rules which are imposed on
import of food products are classified on the basis of the following parameters:
(A)Quality and Packaging requirements:
Import of all such edible/food products including tea, domestic sale and
manufacture of which are governed by Food Safety & Standards Act, 2006 and rules
there under, shall also be subject to the conditions laid down in the aforesaid Act
and rules framed there under. Import of all these products will have to comply with
the quality and packaging requirements as laid down in the Act. Compliance of
these conditions is to be ensured before allowing customs clearance of the
consignment.
(B) Shelf Life:
Import of all such edible /food products, domestic sale and manufacture of which
are governed by Food Safety & Standards Act, 2006 and rules thereunder shall also
be subject to the condition that, at the time of importation, the products are having
a valid shelf life of not less than 60% of its original shelf life. Shelf life of the product

is to be calculated, based on the declaration given on the label of the product,

regarding its date of manufacture and the due date for expiry.
However, this condition of 60% shelf life stipulated above is not applicable to reimportfor export purpose. Re-import for export purpose will be subject to following
conditions:
(i) Re-imported edible/food products to meet stipulated phytosanitary conditions;
(ii) Importers to give an undertaking to Customs that re-imported the goods are not
sold in the domestic market.
(iii) Importers to submit a certificate to Customs that such goods have been
reexported.

(C) Meat and Meat Productsincluding Poultry products:

Import of meat and poultry products will be subject to the compliance of conditions
regarding manufacture, slaughter, packing, labeling and quality conditions as laid
down in Food Safety & Standards Act, 2006 and rules thereunder. All manufacturers
of meat/poultry products exporting their goods to India shall be required to meet
the sanitary and hygienic requirements as stipulated under the aforementioned Act
and rules framed there under. The imported product shall also comply with the
specified packaging, labelling and quality standards as laid down therein.
Compliance of these conditions is to be ensured before allowing customs clearance
of the consignment.

GEMS AND JEWELLERY:

(a) Import of gold of 8k and above is allowed under replenishment scheme subject
to import being accompanied by an Assay Certificate specifying purity, weight and
alloy content.
(b) Duty Free Import Entitlement of Consumables, Tools and additional items
allowed for :
(i)

Jewellery made out of:

a) Precious metals (other than Gold & Platinum) 2%

b) Gold and Platinum 1%
c) Rhodium finished Silver 3%
(ii) Cut and Polished Diamonds 1%
(c) Duty free import entitlement of commercial samples shall be Rs

Rs. 300,000.
(d) Duty free re-import entitlement for rejected jewellery shall be 2% of FOB value
of exports.
(e) Import of Diamonds on consignment basis for Certification/ Grading & re-export
by the authorized offices/agencies of Gemological Institute of America (GIA) in India
or other approved agencies will be permitted.
(f) Personal carriage of Gems & Jewellery products in case of holding/participating in
overseas exhibitions increased to US$ 5 million and to US$ 1 million in case of
export promotion tours.
(g) Extension in number of days for re-import of unsold items in case of
participation in an exhibition in USA, increased to 90 days.
(h) In an endeavour to make India a diamond international trading hub, it is
planned to establish Diamond Bourse(s).
TEXTILE AND TEXTILE ARTICLES CONTAINING HAZARDOUS DYES:
Import of textile and textile articles is permitted subject to the condition that they
shallnot contain any of the hazardous dyes whose handling, production, carriage or
use is prohibited by the Government of India under the provisions of clause (d) of
subsection of the Environment (Protection) Act, 1986 read with the relevant rules
framed there under. For this purpose, the import consignments shall be
accompanied by a pre-shipment certificate from a textile testing laboratory
accredited to the National Accreditation Agency of the Country of Origin.
In cases where such certificates are not available, the consignment will be cleared
after getting a sample of the imported consignment tested & certified from any of
the agencies
(i) Textiles Committee of Ministry of Textiles and its various testing facilities,
(ii) Central Silk Technological Research Institute (CSRTI) (located at Bangluru,
Karnataka) and Eco Testing Laboratory Central Silk Technological Research Institute
(located at Bhagalpur, Bihar, and Varanasi Uttar Pradesh); of the Central Silk Board .
The sampling will be based on the following parameters:
a)At least 25% of samples are drawn for testing instead of 100%.
b) While drawing the samples, it will be ensured by Customs that majority samples
are drawn from consignments originating from countries where there is no legal
prohibition on the use of harmful hazardous Dyes.

c) The test report will be valid for a period of six months in cases where the textile/
textile articles of the same specification/quality are imported and the importer,
supplier and the country of origin are the same.
MULTICHANNEL GSM/CDMA RECIEVERS,TRANSMITTERS AND TRANSRECEIVERS:
Multichannel GSM/CDMA receivers, transmitters and trans-receivers capable of
receiving or transmitting or both in two or more frequencies simultaneously, shall be
Restricted for imports.

Gold imports
Demand for gold is the reason for rise in import of the precious metal. The rising
gold import is one of the main reason for the Current Account Deficit (CAD), which
widened to a record 4.8 per cent of GDP in 2012-13 fiscal.
The RBI and the government has already taken various steps to control the import
of gold with a view to check CAD. The government recently raised customs duty on
gold to 10 per cent.
Import of gold went up by a huge 87 per cent from 205 tonnes in April-July 2012 to
383 tonnes during the corresponding period this year. In value terms, the increase
was 68 per cent from Rs 56,488 crore to Rs 95,092 crore.
The government has targeted a CAD at 3.7 per cent of GDP, or $70 billion, in the
current financial year. India's CAD, which indicates the excess of imports of goods,
services and transfers over exports, touched a record 4.8 per cent of GDP, or $88.2
billion, in 2012-13

Export Policy
General Notes to Export Policy Goods under Restrictions

1. Free Exportability
All goods other than the entries in the export licensing schedule along with its
appendices are freely exportable. The free exportability is however subject to any
other law for the time being in force. Goods not listed in the Schedule are deemed
to be freely exportable without conditions under the Foreign Trade (Development
and Regulations) Act, 1992 and the rules, notifications and other public notices and
circulars issued there under from time to time. The export licensing policy in the
schedule and its appendices does not preclude control by way of a Public Notice
Notification under the Foreign Trade (Development and Regulations) Act, 1992.
Goods listed as Free in the Export Licensing Schedule may also be exported
without an export licence as such but they are subject to conditions laid out against
the respective entry. The fulfillment of these conditions can be checked by
authorized officers in the course of export.
2. Code does not limit the item description
The export policy of a specific item will be determined mainly by the description
and nature of restriction in the schedule. The code number is illustrative of
classification but does not limit the descriptio by virtue of the standard description
of the item against the code in the import part of the ITC(HS) classification.
3. Classes of Export Trade Control
A. Prohibited Goods
The prohibited items are not permitted to be exported. An export licence will not be
given in the normal course for goods in the prohibited category. No export of rough
diamond shall be permitted unless accompanied by Kimberley Process (KP)
Certificate as specified by Gem & Jewellery EPC (GJEPC).
B. Restricted Goods
The restricted items can be permitted for export under licence. The procedures /

conditionalities wherever specified against the restricted items may be required to

be complied with, in addition to the general requirement of licence in all cases of
restricted items.
C. State Trading Enterprises
Export through STE(s) is permitted without an Export Licence through designated
STEs only as mentioned against an item and is subject to conditions in para 2.11 of
Foreign Trade Policy 2009-14.
D. Restrictions on Countries of Export
(i) Export of Arms and related material to Iraq shall be prohibited.
(ii) Direct or indirect export of all items, materials, equipments, goods and
technology which could contribute to Irans enrichment related, reprocessing or
heavy water related activities, or to development of nuclear weapon delivery
systems including those listed in INFCIRC/254/Rev.9/Part 1 and
INFCIRC/254/Rev.7/Part 2 (IAEA Documents) and items listed in S/2010/263 (UN
Security Council Document) or any items related to nuclear and missile
development programmes is prohibited. All the UN Security Council
Resolutions/Documents and IAEA Documents referred to above are available on
the UN Security Council website ( www.un.org/Docs/sc) and IAEA website
(www.iaea.org).
(iii)Direct or indirect export of following items, whether or not origninating in
Democratic Peoples Republic of Korea (DPRK), to DPRK is prohibited:
All items, materials equipment, goods and technology including as set out in
lists in documents S/2006/814, S/2006/815 (including S/2009/205), S/2009/364
and S/2006/853 (United Nations Secruty Council Documents)
INFCIRC/254/Rev.9/Part 1a and INFCIRC/254/Rev.7/Part 2a (IAEA documents)
which could contribute to DPRKs nuclear-related, ballistic missile-related or
other weapons of mass destruction-related programmes.
(iv) Export of rough diamonds to Cote dIvoire is prohibited in compliance to
Paragraph 6 of UN Security Council Resolution (UNSCR) 1643 (2005).
(v) Export of rough diamond [ITC (HS) Code 710210, 710221 or 710231) to
Venezuela shall be
Prohibited in view of voluntary separation of Venezuela from the Kimberley
Process Certification Scheme (KPCS). No Kimberley Process Certificate shall be
accepted / endorsed / issued for export of rough diamond to Venezuela.
(vi) In addition to above, export to other countries will be subject to conditions as
specified in Para 2.1 of the Foreign Trade Policy 2009-14 and Para 2.2 of the
Handbook of Procedures 2009-2014 (Vol. I) and other conditions which may be
listed in the title ITC (HS) Classification of Export and Import items.

Colum
n
No.

Column
Name

1.

Entry No.

2.

Tariff Item
(HS) Code

3.

Unit

4.

Item
Descriptio
n

Description
Gives the order of the main entry in the schedule. The column is
designed for
easy reference and gives the identity of the raw covering the set
consisting of
Tariff Item Code, Unit Item description export policy and Nature of
restriction
along with the connected Licensing Note and Appendix.
This is an eight digit code followed in the import policy in the
earlier part of the
book, customs and the DGCIS code. The first two digits give the
chapter
number, the heading number. The last two digits signify the
subheading. The six
digit code and product description corresponds exactly with the
six digit WCO
(World Customs Organisation). The last digits are developed in
India under the
common classification system for tariff item.
The second column gives the unit of measurement or weight in
the tariff item,
which is to be used in shipping bill and other documents. In most
cases, the unit
is given as u denoting number of pieces.
The item description against each code gives the specific
description of goods,
which are subject to export control. This description does not
generally
correspond with the standard description against the code. In
most cases, the

5.

description will cover only a part of standard description.

This column is for the general policy regime applicable on the
item.
Generally, the Export Policy is one of the following.

Export
Policy

Not permitted for Export Licence will not be given

in the
normal course
Export is permitted under a licence granted by the
Restricted
DGFT
STE
Export allowed only through specified State
Trading Enterprises (STEs) subject to specific
conditions
laid out in the FTP and also Para 2.11 of the Import
and Export Policy
This column specifies the special conditions, which must be met
for the export
of goods in the item description column. The column may also
give the nature of
restriction under the broad category in the Export Policy column.
Prohibited

6.

Nature of
Restriction

50,
52,
1.
55,

Dress materials/ready
51, made
Garments fabrics/textile
54, Items with imprints of
excerpts or verses of the
60, Holy Quran

Restricted

Exports permitted
under
licence.

Restricted

Exports permitted under

Licence.

61,
62,
2.

63
0102 10
10
0102 10
20
0102 10
30
0102 10
90

Live Cattle and buffaloes

3.

0102 90
10
0102 90
20
0201 10
00
0201 20
00
0201 30
00
0202 10
00
0202 20
00
0202 30
00
0402

4.

1006 10
1006 10
90
6.

7.

Beef of cows, oxen and calf Prohibited

Prohibited
Milk and Cream,
concentrated or containing
added sugar or
other
sweetening matter
including
Skimm
ed
milk
powder,
whole
milk
powder, dairy
Whiten
er
and infant
milk
foods
Non Basmati Rice

Free

1006 20
00
1006 30
1006 30
10
1006 30
90
1006 40
00
100190 10 Wheat of seeds quality

Not permitted to be
exported

Not permitted to be
exported

1. Export to be made by
private
parties from privately held
stocks
State
Trading Enterprises (STEs)
including M/s. NCCF &
NAFED
are also permitted to
export
privately held stocks of
non-

Free

Basmati rice.
1. Export will be allowed
subject to submission of
following documents to
Customs at the time of
export:
(i) A license to carry on the
business
of a dealer in seeds issued
under
Section 3 of the Seed

Graphical Representations and

Comparisons
India: Then and Now
India and other Developing
Economies

Graphical Representation and Comparison on

Current Economic Condition of India
Flow of money out of India

Chart Title
16
20

14

10

15
Amount
(billion of dollars)

Equity
10

FII Debt

0
till may'13
beyond may'13
Time period (month'2013)

Series 1- Equity
Series2- FII Debt
Till May13 equity stood at $14 billion. And FII Debt at
$16billion.

A total of $12 billion went away since May13.

FDI (INDIA)

FDI
6
5

4.8

4
AMOUNT
(billion of dollars)

2.7

3
2
1
0

2008

2013
YEAR

2008 - $48billion
2013 - $27 billion
Inference:
India is not as attractive an investment destination as it
was before.
There has been more dependency than ever on
foreigners.

FDI

Current account deficit:

CAD
100

90

90
80
70
60
AMOUNT
(billion of dollars)

CAD

50
40
30
20
10
0

8
2007

2013
YEAR

2007 - $8 billion
2013 - $90 billion

Foreign exchange reserves cover v/s. Current

account deficit:

Foreign reserves
305
300

300

295
290
AMOUNT
(billion/$8billion)

285

Foreign reserves

280
275

275
270
265
260

2007

2013
YEAR

2007 - $300 billion/ $8 billion

2013- $275 billion/ $90 billion

Short term debt:

Short Term Debt

200

170

150
AMOUNT
(billion of dollars)

100

80

short term debt

50
0

2007

2013
YEAR

2007 - $80 billion

2013 - $ 170 billion
Top 10 companies deeply in debt:

Debt
7000

6000

6000
5000
Amount
(billion of dollars)

4000
Debt

3000
2000

1000

1000
0

2007

2013
YEAR

2007 $1000 billion

2013 -$ 6000 billion
Corporate India investing abroad:

Investments Abroad
25
20
15
AMOUNT
10
7

5
0

2008

2013
YEAR

India and other developing economies:

A Thorough Comparison:

GLOBAL VS LOCAL: STOCK MARKETS

0
Category 1
-2
-5
Mexico
-7
-10

-15

-7

china
indonesia

-10

russia
-13

South Africa
India
-17

-20

-25

Brazil
-20

FISCAL DEFICIT (% OF GDP)

6
4.8

5
RUSSAI
BRAZIL

CHINA
MEXICO

3
2
1

1.5

1.8

2.2

2.2

INDONESIA
TURKEY
SOUTH AFRICA
INDIA

0.5

0
FISCAL DEFICIT

Currency Devaluation (currency v/s dollar)

5
2
0
currency devaluation

-1

china

-5

Mexico
-8

-10

-8

Indinesia
Russia

-9

Turkey
India

-15

South frica

-16
-20

-20

-25

Current account deficit (% of GDP)

4
2.3

2.3

2
Russia
China

0
CAD
-2

Mexico
brazil

-1.8

Indinesia
India

-4

-6

-4.1

South Africa

-4.1

Turkey
-5
-5.8
-6.6

-8

Inferences:
Statement of problem
After thorough analysis of the EXIM policies and comparison with the current
account deficits of other countries on various parameters we have come to
the conclusion that such a mammoth current account deficit of India is the
result of various contributing factors such as
1.
2.
3.
4.
5.
6.
7.

Policy paralysis
lack of reforms in past few quarters
High gold imports
Oil imports
Low exports
Depreciation of rupee
Less reforms in agricultural sectors

are some of the contributing factors.

Oil imports
India would save over $8.5 billion in foreign exchange this fiscal by
increasing crude oil imports from Iran
India, which paid about $144.29 billion last fiscal for importing oil, is
renewing imports from Iran as unlike imports from other countries it pays the
Persian Gulf nation in rupees.
Detailing plans to save $20 billion in foreign exchange spending, Mr.Moily on
August 30 wrote to Prime Minister Manmohan Singh saying about 11 million
tonnes of crude will be imported from Iran in the remainder of the fiscal.
About 2 million tonnes crude oil has been imported from Iran so far during
the current financial year. An additional import of 11 million tonnes during
2013-14 would result in reduction in forex outflow by $8.47 billion
(considering the international price of crude oil at $105 per barrel), he
wrote.
Measures to reduce Current Account Deficit in India
Major components of deficit which needs to be taken care of
1. Trade deficit
The first component of current account deficit is usually a trade deficit
this means the country imports more goods and services than its exports. An

ongoing trade deficit weakens the countrys economy over the long term
because it is financed with debt. So in order to reduce the trade deficit India
must focus on more of exports of goods and services and implementation of
usage home produced goods and services
2. Net Income
Second component is usually a deficit in the net income. The income
paid out by the countrys individuals, businesses and government to their
foreign counterparts should not exceed more than the receipts. This would
contribute to surplus, specifically these are payments of interest and
dividend from foreigners who own assets in the country.
3. Direct Transfers
The third component of deficit is direct transfers which includes
government grants to foreigners. Specifically, deficit is decreased by these
direct transfers
1. Wages received from a foreigners home country
2. Government grants received by Indians individuals/businesses from other
countries
3. Direct disinvestment made abroad by a countries residents
4. Increase in FII.

******

BIBLIOGRAHY:
1. data.worldbank.org/indicator/BN.CAB.XOKA.GD.ZS

Dated:01-09-2013, 5:30pm

2. http://www.investopedia.com/terms/c/currentaccountdeficit.aspDated:01-09-2013, 8:40pm
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Dated:02-09-2013, 6:30pm
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Dated:02-09-2013, 7:00pm

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Dated:02-09-2013, 7:30pm

6. http://www.rbi.org.in/home.aspx

Dated:02-09-2013, 11:30pm

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8. http://www.tradingeconomics.com/india/current-account

Dated:04-09-2013, 9:30pm
Dated:05-09-2013, 7:30pm

9. http://dgft.gov.in/Exim/2000/NOT/itc(hs)/Eschedule2.pdf

Dated:05-09-2013, 8:00pm

10. www.moneycontrol.com/news-topic/current-account-deficit/ Dated:06-09-2013,

6:30pm