This document discusses India's current account deficit (CAD). It provides background on what CAD is, how it is measured, and its potential impacts. CAD occurs when a country's imports of goods and services exceed its exports, resulting in it being a net debtor. It can lead to slower economic growth and higher unemployment and inflation. CAD is caused by factors like an overvalued currency, economic growth, and declining competitiveness. India implements policies to control CAD, such as devaluing the rupee to boost exports and reduce imports. A persistently high CAD can negatively impact the stock market as it signals economic imbalances and slower growth.

1. GROUP 2
Participant's Name Participant's Enroll. No.
Singh Anu Nagina E14CC1052989
Raushan Kumar E14CC1053191
Ravi Roshan E14CC1053138
Ekta Kumari E14CC1052934
Pallavi Kumari E14CC1053093
Study About CAD, Impact Of CAD, Measures
Taken To Control CAD and Impact Of Increasing
CAD On Equity.
ET-FINPRO AM 3 “PAT01AA2517”

2.  CURRENT DEFICIT
 CURRENT ACCOUNT DEFICIT
 IMPACT OF CAD
 CAUSES OF CAD
 EXPORT & IMPORT POLICIES
 MEASURES TAKEN TO CONTROL CAD
 IMPACT OF INCREASING CAD ON
EQUITY
 CONCLUSION
CONTENT

3. A Deficit means that
“Expenses” of the country are
more than the Income. In other
words the country is Importing
more goods & services than it
is Exporting.
CURRENT DEFICIT

4. CURRENT ACCOUNT
DEFICIT
 Current account deficit occurs when a
country’s total imports are greater than the
country’s total exports.
 This situation makes a country a net debtor to
the rest of the world.
 Current Account deficit are Usually Measured
as a Percentage of GDP.
 A negative current account position means
Current account Deficit.
TOTAL IMPORT TOTAL EXPORT

5. Let’s
understand
this concept
through an
interesting
story!
Raj and Vinay travel together to work by
train everyday. As a usual morning
practice, Vinay was reading a business
paper when he came across the term
‘Current Account Deficit ‘.
He wondered what it meant and asked
Raj to explain.
Raj tells him that if he answers
a few questions, the meaning
of the term CAD will get clear.
Raj asks Vinay to name of
sources of his income?
Vinay them as salary, Interest
income from Fixed Deposits
and Dividends from Mutual
funds.
On hearing this, Raj says, “OK. But how
about festival grants and birthday gifts
received in cash?”
Vinay agrees “yes, sometimes”.
Raj then asks Vinay to list his expenses?
On hearing this Vinay promptly
responds, “Monthly house expenses,
Children’s school fees, Birthdays &
Anniversary, occasional shopping and
medical expenses.”
Raj then explains, “Now assume
your expenses exceed your
income this month.
Then what will you do?”
Vinay after a pause says,
“Oh…then I will have to borrow
money from someone.”

6. Raj continues to speak, “Exactly.
When your expenses exceed
income, it is known as ‘Deficit’.
And then you become indebted
to the lender who lends you
money.”
“OK. That is easy to
understand.” says Vinay.
Raj continues explaining, “Similarly,
Current Account for a country is
expressed as the difference between the
value of EXPORT of goods & services and
the value of IMPORT of goods & services.
In the context exports are “earnings”
while imports are like “expenses”.

7. HOW TO MEASURE CAD?
 BALANCE OF TRADE: The Balance of Trade is the
difference between a nation’s Exports of goods &
services and its Imports of goods & services.
 FACTOR INCOME: Earnings on foreign investment
minus payment made to foreign investors.
 CASH TRANSFER: Cash remittances and grants
received minus Cash remittances and grants paid.
CURRENT ACCOUNT DEFICIT = BALANCE OF
TRADE + NET FACTOR INCOME + NET CASH
TRANSFER

8. IMPACT OF CAD
 SLOW GROWTH OF
ECONOMY
 UNEMPLOYMENT
 HIGH RATE OF INFLATION

9. CAUSES OF CAD
 OVERVALUED EXCHANGE RATE
 ECONOMIC GROWTH
 DECLINE IN COMPETITIVENESS SECTOR
 HIGHER INFLATION
 RECESSION IN OTHER COUNTRIES
 BORROWING MONEY
 FINANCIAL FLOW TO FINANCE
CURRENT ACCOUNT DEFICIT

10. EXPORT & IMPORT POLICIES
 The Foreign Trade Policy of India is guided by the Export
Import is also known as EXIM Policy of the Indian
Government and is regulated by the Foreign Trade
Development and Regulation Act, 1992.
Aim:
 developing export potential,
 improving export performance,
encouraging foreign trade and
 creating favorable balance of payments position.
Foreign Trade Policy is prepared and announced by the
Central Government (Ministry of Commerce).
 Foreign Trade Policy or EXIM Policy is a set of guidelines
and instructions established by the DGFT (Directorate
General of Foreign Trade) in matters related to the import
and export of goods in India.
EXPORT
Exports are the goods
and services
produced in one
country and
purchased by citizens
of another country.
IMPORT
An import is a good
or service brought
into one country
from another

11. MEASURES TAKEN TO
CONTROL CAD
A CAD occurs when the value of imports is
greater than the value of exports. Policies to
reduce a CAD involve:
Devaluation of exchange rate (make exports
cheaper – imports more expensive)
Reduction of domestic consumption and
spending on imports (e.g. tight fiscal
policy/higher taxes)
Supply side policies to improve the
competitiveness of domestic industry and
exports.

12. IMPACT OF INCREASING CAD
 A high CAD is a long-term deficit and can
act as a big alarm to most of the developing
economics like India, not necessarily to all.
It should be regulated by government to
improve and change the economic
conditions of a country (where, BoP=0).
 A deficit may be high because of:
 Currency Depreciation
 Excessive Import of Oil, Coal & Gold
and other goods & services
 Balance of trade
 Inflation

13.  The depreciation of currency is also known as
Price- rise or Inflation.
 Higher the Inflation lower the Purchasing power
of returns received from investments.
Inflation reduces the real return.
 Impact on equity, when investor invest in it the
equity stock price keep decreasing backed by the
economic slow growth.
IMPACT OF INCREASING CAD ON
EQUITY

14. Gold may not be good thing to buy for
consumption during this period but may be
appear attractive investment options given
its low risk structure.
 Equity stock price keeps decreasing backed
by the economic slow growth.
 An investor has to think several times
before investing this hard core earned
money.
CONT..

15. The CAD is an important signal of competitiveness and
the level of imports and exports.
A large CAD usually implies some kind of imbalance in
the economy, which needs correcting with a depreciation
in the exchange rate and/or improved competitiveness
over time.
 However, it is not straightforward a CAD can often be
reduced naturally over time as capital flows cause
revalution in the exchange rate.
The biggest concern for a CAD is when it is financed by
borrowing, but a crisis of confidence causes this
borrowing to dry up.
This can cause a dramatic drop in the exchange rate,
adversely affect the standards of living.
CONCLUSION

16. THANK YOU