SUBMITTED BY:

AAKANKSHA MATHUR
ANJALI SHARMA
GURSIMRAN KAUR
KARAN DEEP SINGH
KARN VERMA
PRASHASTI MITTAL
In economics the current account is one of
the two primarycomponentsof the BALANCE
OF PAYMENTS, the other being capital
account.
It is the sum of Balance of trade(i.e the net
revenue generated on exports the payments
for the imports),
Factor income(i.e earning on foreign
investment payment for import foreign
investors) & cash transfers.
A measurement of a countrys trade in which
the values of goods and service it exports


The countrys current account can be
calculated by the folowing formula:-

C.A = ( X M ) + N Y + N C T

C.A = current account
X,M = exports , imports respectively
NY = net income from abroad
NCT = net current transfers

A current account deficit represents a
negative sales abroad.
Developed countries such as USA often run
current account deficit, while emerging
economic often run on current account
surplus.
Countries that are poor tends to run on
current account deficits.
If an economy is running current account
deficit therefore it is absorbing more than its
producing.

There are various factors which could cause a
current account deficit:
Fixed Exchange Rate
If the currency is overvalued, imports will be
cheaper and therefore there will be a higher
quantity of imports. Exports will become
uncompetitive and therefore there will be a fall
in the quantity of exports.


Consequence: As the export decreases thus
the CAD gap widens i.e. there will be more
imports than exports.

Economic Growth
If there is an increase in national income,
people will tend to have more disposable
income to consume goods. If domestic
producers can not meet the domestic demand,
consumers will have to import goods from
abroad.


Consequence: As the import increases thus
the CAD gap widens i.e. there will be more
imports than exports.
Competitiveness of Exports
The decline in exports due to following reasons will widens the CAD.

1. Higher inflation
This makes exports less competitive and imports more
competitive. However this factor may be offset by a decline in
the value of sterling.

2. Recession in other countries.
If the UKs main trading partners experience negative
economic growth then they will buy less of our exports,
worsening the current account.

3. Borrowing money
If countries are borrowing money to invest e.g third world
countries
Monetary policy: Monetary policy is the
process by which the monetary authority of a
country controls the supply of money,
targeting a rate of interest for the purpose of
promoting economic growth and stability.
The official goals usually include relatively
stable prices and low unemployment.


Expansionary policy is traditionally used to
try to combat unemployment in a recession
by lowering interest rates in the hope that
easy credit will entice businesses into
expanding. Contractionary policy is intended
to slow inflation in order to avoid the
resulting distortions and deterioration of
asset values.
Government spending policies that influence
macroeconomic conditions. Through fiscal
policy, regulators attempt to improve
unemployment rates, control inflation,
stabilize business cycles and influence
interest rates in an effort to control the
economy.

Fiscal policy is better in controlling current
account deficit problems and monetary
policy is more suitable for domestic problems
of an economy.

LESS IMPORT OF OIL
Growth predominantly driven by oil
Govt oil import bill.a function of quantity
imported and international price of crude
oil.

HIGH TAXES ON GOLD IMPORTS
Customs, tradition, safety concern
Duty on gold import has been increased to 8%

OTHER IMPORTS
Imports like capital goods and machinery, transport
equipment and electronics are necessary for Indias
infrastructure growth

EXPANDING THE EXPORT PIE
Indias share of merchandise export in global trade
is still below 2 percent and hence a lot needs to be
achieved in this area.
Export of auto and auto components is on the rise
Engineering talent pool could be put to better use in
manufacturing
Enhancing trade with existing partner countries
Establishing new relationships with developing
countries




RESTRICTING ECONOMIC ACTIVITY
Curb down imports of non-essential commodities like
GOLD.

Boost exports or increase net investment.

Govt. should cut down its own expenditures and
encourage banks to restrict credit.

Govt. should intervene directly and impose controls
on imports and foreign exchange
IMPORT CONTROLS
Govt. should issue licenses to individuals & firms
authorising the annual import of a specific quantity of
a type of good.


NEGATIVE ASPECT: This would lead to limited products
availability in the economy and would lead to shortage
of goods in economy.
Also, import licenses could increase the
likelihood of payment crisis.

THE ROLE OF RBI
RBI should buy up the inflows whenever the rupee
appreciate & not sell when the rupee depreciates, this
can lead to building up of foreign exchange reserves.


GOLD IMPORTS
The Govt. & the RBI should take aggressive
measures to curb down the gold imports.