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India's Current Account Deficit- A report

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A report on india's current account deficit. …

A report on india's current account deficit.
compiled by: Gurpreet Singh, Neha Diwakar, Udbhav mehta and Shweta Dixit.


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  • 1. Submitted by- Gurpreet Singh(15) Neha Diwakar(20) Shweta Dixit(35) Udbhav Mehta(37) Current Account Deficit India and other developing nations
  • 2. 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.
  • 3. Content 1. Introduction 2. Current account 3. Deficit 4. Balance of payment 5. Measurement of current account for a country 6. India’s current account situation 7. Import policies 8. Export policies 9. Graphical representations 10.Inference
  • 4. 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.
  • 5. 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).
  • 6. 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.
  • 7. 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.)
  • 8. 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.
  • 9. Current Account Deficit-Report What is India’s 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. India’s 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. India’s 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 India’s record current account deficit is “worrying”. Deficit on the current account means a net outflow of foreign exchange. In India’s case, this means a dollar outgo. Such a deficit could drain the country’s 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 country’s 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 country’s 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 won’t 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. Large fiscal deficit, CAD impacted market confidence: IMF India’s large fiscal and current account deficits have impacted market confidence; the IMF has said CAD in Q1 to be much higher than 3.7%: Montek
  • 10. 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.
  • 11. Comparison of Current Account Deficit (2008-2013):
  • 12. 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 re-importfor export purpose. Re-import for export purpose will be subject to following conditions:
  • 13. (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.
  • 14. (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 TRANS-RECEIVERS: 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.
  • 15. 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 .
  • 16. 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 Iran’s 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).
  • 17. (iii) Direct or indirect export of following items, whether or not origninating in Democratic People’s 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 DPRK’s nuclear-related, ballistic missile-related or other weapons of mass destruction-related programmes. (iv) Export of rough diamonds to Cote d’Ivoire 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.
  • 18. Column Column Description No. Name 1. Entry No. 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. 2. Tariff Item This is an eight digit code followed in the import policy in the earlier part of the (HS) Code 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. 3. Unit 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. 4. Item The item description against each code gives the specific description of goods, Description which are subject to export control. This description does not generally correspond with the standard description against the code. In most cases, the description will cover only a part of standard description. 5. Export This column is for the general policy regime applicable on the item. Policy Generally, the Export Policy is one of the following. Prohibited Not permitted for Export Licence will not be given in the normal course Restricted Export is permitted under a licence granted by the 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 6. Nature of This column specifies the special conditions, which must be met for the export Restriction 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.
  • 19. 50, 51, 52, 54, 55, 60, 61, 62, 63 Dress materials/ready made Garments fabrics/textile Items with imprints of excerpts or verses of the Holy Quran Restricted Exports permitted under licence. 1. 2. 0102 10 10 Live Cattle and buffaloes Restricted Exports permitted under Licence. 0102 10 20 0102 10 30 0102 10 90 0102 90 10 0102 90 20 0201 10 00 Beef of cows, oxen and calf Prohibited Not permitted to be exported 3. 0201 20 00 0201 30 00 0202 10 00 0202 20 00 0202 30 00 0402 Milk and Cream, concentrated or containing Prohibited Not permitted to be exported 4. added sugar or other sweetening matter including Skimme d milk powder, whole milk powder, dairy Whitene r and infant milk foods 1006 10 Non Basmati Rice Free 1. Export to be made by private 1006 10 90 parties from privately held stocks 6. 1006 20 00 State Trading Enterprises (STEs) 1006 30 including M/s. NCCF & NAFED 1006 30 10 are also permitted to export 1006 30 90 privately held stocks of non- 1006 40 00 Basmati rice. 100190 10 Wheat of seeds quality Free 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 Control Order (1983) from the State overnment; 7.
  • 20. Graphical Representations and Comparisons India: Then and Now India and other Developing Economies
  • 21. Graphical Representation and Comparison on Current Economic Condition of India Flow of money out of India Series 1- Equity Series2- FII Debt Till May’13 equity stood at $14 billion. And FII Debt at $16billion. A total of $12 billion went away since May’13. 0 5 10 15 20 till may'13 beyond may'13 14 2 16 10 Amount (billionofdollars) Time period (month'2013) Chart Title Equity FII Debt
  • 22. FDI (INDIA) 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. 4.8 2.7 0 1 2 3 4 5 6 2008 2013 AMOUNT (billionofdollars) YEAR FDI FDI
  • 23. Current account deficit: 2007 - $8 billion 2013 - $90 billion 8 90 0 10 20 30 40 50 60 70 80 90 100 2007 2013 AMOUNT (billionofdollars) YEAR CAD CAD
  • 24. Foreign exchange reserves cover v/s. Current account deficit: 2007 - $300 billion/ $8 billion 2013- $275 billion/ $90 billion 300 275 260 265 270 275 280 285 290 295 300 305 2007 2013 AMOUNT (billion/$8billion) YEAR Foreign reserves Foreign reserves
  • 25. Short term debt: 2007 - $80 billion 2013 - $ 170 billion Top 10 companies deeply in debt: 2007 – $1000 billion 2013 -$ 6000 billion 80 170 0 20 40 60 80 100 120 140 160 180 2007 2013 AMOUNT (billionofdollars) YEAR Short Term Debt short term debt 1000 6000 0 1000 2000 3000 4000 5000 6000 7000 2007 2013 Amount (billionofdollars) YEAR Debt Debt
  • 26. Corporate India investing abroad: 7 0 5 10 15 20 25 2008 2013 AMOUNT YEAR Investments Abroad
  • 27. India and other developing economies: A Thorough Comparison:
  • 28. GLOBAL VS LOCAL: STOCK MARKETS FISCAL DEFICIT (% OF GDP) -2 -7 -7 -10 -13 -17 -20 -25 -20 -15 -10 -5 0 Category 1 Mexico china indonesia russia South Africa India Brazil 0.5 1.5 1.8 2 2.2 2.2 4.8 5 0 1 2 3 4 5 6 FISCAL DEFICIT RUSSAI BRAZIL CHINA MEXICO INDONESIA TURKEY SOUTH AFRICA INDIA
  • 29. Currency Devaluation (currency v/s dollar) Current account deficit (% of GDP) 2 -1 -8 -8 -9 -16 -20 -25 -20 -15 -10 -5 0 5 currency devaluation china Mexico Indinesia Russia Turkey India South frica 2.3 2.3 -1.8 -4.1 -4.1 -5 -5.8 -6.6 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 CAD Russia China Mexico brazil Indinesia India South Africa Turkey
  • 30. 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. Policy paralysis 2. lack of reforms in past few quarters 3. High gold imports 4. Oil imports 5. Low exports 6. Depreciation of rupee 7. 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 country’s economy over the long term because it is financed with debt. So in order to
  • 31. 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 country’s 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 foreigner’s 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. ******
  • 32. 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 3. http://www.goodreturns.in/classroom/2013/08/why-is-high-current-account-deficit-cad-bad- for-india-202532.html Dated:02-09-2013, 6:30pm 4. http://en.wikipedia.org/wiki/Current_account Dated:02-09-2013, 7:00pm 5. http://mospi.nic.in/Mospi_New/site/Home.aspx Dated:02-09-2013, 7:30pm 6. http://www.rbi.org.in/home.aspx Dated:02-09-2013, 11:30pm 7. http://en.wikipedia.org/wiki/Five-Year_plans_of_India Dated:04-09-2013, 9:30pm 8. http://www.tradingeconomics.com/india/current-account 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

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