India’s current account deficit likely at below 1% of GDP in FY24

What Is a Current Account Deficit?

  • The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.
  • The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account. 
  • The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments (BOP).

What is the Causes of CAD:

  • Trade Deficit: This is the largest component of the current account deficit and occurs when a country imports more goods than it exports.
  • Net Foreign Investment: If a country invests more abroad than foreign entities invest in the domestic economy, it contributes to the deficit.
  • Foreign Aid: Sending more aid than receiving it can widen the deficit.


  • Exchange Rate: A large and persistent deficit can put downward pressure on the currency, potentially making imports more expensive.
  • Economic Growth: It can act as a source of investment for developing economies, but a large deficit can raise concerns about sustainability and external debt.
  • Interest Rates: Higher deficits may lead to higher interest rates as the government borrows to finance it.

Other key points about CAD:

  • The impact of a current account deficit depends on various factors, including its size, cause, and the overall health of the economy.
  • Some argue that moderate deficits can be beneficial for economic growth, while others warn against the risks of excessive debt accumulation.
  • Understanding the current account deficit is crucial for policymakers and individuals to assess a nation’s economic health and vulnerability.

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