Economics Class 02

OVERVIEW OF THE PREVIOUS CLASS (05:04 PM)

CURRENT ACCOUNT DEFICIT (05:09 PM)

Balance of Payments (BoP) records the transactions in goods, services, and assets between
residents of a country with the rest of the world for a specified time period typically a year.

The Current Account is one of the two accounts in the Balance of Payments (BoP).

It records exports and imports of goods and services and transfers payments of a country.

Transfer payments are receipts received by the residents ‘for free’, without any present or future
payments in return.

It includes remittances, gifts and grants.

The Capital Account is the second account, recording all international purchases and sales of assets
such as money, stocks, bonds, etc. for a specified time, usually a year

REASON FOR HIGH CAD IN INDIA

Higher trade deficit: Increased imports and decreased exports have contributed significantly to the
widening of CAD.

Services Receipts Decline: Net services receipts decreased, primarily due to reduced exports of
computer, travel, and business services.

Impact of Global Factors: Slowing global growth has implications for India's export-oriented
services and remittances, adding to the challenges of maintaining a lower CAD.

Rising Oil Prices: An anticipated increase in oil prices is expected to further widen the merchandise
trade deficit. Higher oil prices contribute to increased import costs, affecting the overall CAD.

Foreign Direct Investment (FDI) Decline: Net FDI declined in the financial account, influencing the
overall balance.

POTENTIAL THREATS OF INCREASING CAD

Based on a historical perspective, India can sustain a CAD of 2.5-3.0% of GDP without getting into
an external sector crisis (Economic Survey 2021-22). But a deficit beyond that can have an impact
on the following -

Foreign investment: Pull out of foreign institutional investors or limited capital flow.

Exchange Rate: A high Current Account Deficit for the long term decreases the global demand for
the currency and can lead to a situation of free fall in currency exchange rate.

Inflation: Price instability in turn fuels inflationary concerns, leading to further reduction in
domestic savings, leading to lower investments or foreign borrowing to fund growth needs.

Payment imbalances: They can lead to a BoP crisis as was observed in the Asian Financial Crisis
(1997) and the recent Sri Lankan crisis.

DATED SECURITIES (05:43 PM)

Retail direct scheme

Any retail investor can invest in government securities in the primary and the secondary market.

Small investors can now buy or sell government securities (G-Secs), or bonds, directly without
having to go through an intermediary like a mutual fund.

Investors wishing to open a Retail Direct Gilt account directly with the RBI can do so through an
online portal set up for the scheme.

The minimum amount for a bid is ₹10,000 and in multiples of ₹10,000 thereafter.

There are two ways to buy Government securities through the Retail Direct platform:

1)By placing a bid in the primary auctions of dated G-Sec, T-Bills and SDLs (Non-competitive
segment only, i.e., by only entering the desired amount of securities, without entering a price).
For Sovereign Gold Bonds (SGBs), you may place a bid during the subscription windows
announced by RBI on its website.

2)By placing a buy quote in the secondary market portal.

GOODS AND SERVICES TAX (05:57 PM)

In news: 28% tax on online gaming.

Game of chance where luck plays a vital role (Here it was already 28%) and game of skill(Where
elements of luck are minimal and skills play a role).

The company will have to pay 28% of the contest entry amount.

This is hurting the profitability and participation of customers for the company.

The reservation here of the companies is that the tax is arbitrary as post establishment of the
company, the new tax is levied.

IDEA OF GST