India's current account deficit at 1% of GDP in Mar quarter"

• India's current account balance recorded a deficit of $8.1 billion (1% of GDP) in the quarter ended March 2021 (Q4FY21): RBI said in a release on Wednesday.

• The country's current account deficit in the January-March quarter stood at $8.1 billion compared to a surplus of $0.6 billion in the same quarter a year ago.

What is current account deficit?

• A nation’s Current Account maintains a record of the country’s transactions with other nations, in terms of trade of goods and services, net earnings on overseas investments and net transfer of payments over a period of time, such as remittances.

• Current Account Deficit or CAD is the shortfall between the money flowing in on exports, and the money flowing out on imports. Current Account Deficit (or Surplus) measures the gap between the money received into and sent out of the country on the trade of goods and services and also the transfer of money from domestically-owned factors of production abroad.

What does recent RBI data says about India’s CAD?

• India's current account balance recorded a deficit of $8.1 billion (1% of Gross Domestic Product - GDP) in the quarter ended March 2021 (Q4FY21) on the back of a higher trade deficit and lower net invisible receipts.

• The country's current account deficit in the January-March quarter stood at $8.1 billion compared to a surplus of $0.6 billion in the same quarter a year ago.

• However, India reported a current account surplus of 0.9 per cent of GDP in the financial year 2020-21 as against a deficit of 0.9 per cent in 2019-20, data released by the Reserve Bank of India (RBI) showed on Wednesday.

Is Current Account Deficit a bad thing?

• Current Account Deficit may be a positive or negative indicator for an economy depending upon why it is running a deficit. Foreign capital is seen to have been used to finance investments in many economies. Current Account Deficit may help a debtor nation in the short-term, but it may worry in the long-term as investors begin raising concerns over adequate return on their investments.

• A country with rising CAD shows that it has become uncompetitive, and investors are not willing to invest there. They may withdraw their investments.

How can Current Account Deficit be improved?

• CAD exists due to a host of factors including existing exchange rate, consumer spending level, capital inflow, inflation level, and prevailing interest rate. For the CAD in India, crude oil and gold imports are the primary reasons behind high CAD. The CADcould be reduced by boosting exports and curbing non-essential imports such as gold, mobiles, and electronics.