causes, consequences of cad & steps taken by government

“STEPS THE GOVERMENT TAKEN TO REIN IN CURRENT ACCOUNT DEFICIT CAN

DIRECTLY AFFECT YOU” –EVALUATE THE STATEMENTS

Saturday, April 8, 2023 1


GROUP MEMBERSIDENTIFICATION NUMBER

Sureka Tatavarty

Shobha Rani M

Srishti Mathur

Sirisha B

Bharath Kumar A

FACULTY : P V L RAJU CENTRE : HYDERABADBATCH : PGDBM - 5


CONTENTS

SLIDE NUMBER

Current Account Deficit 4-6

Causes of CAD 7-8

Consequences of CAD 9-10

Imports - Exports 11-12

Highlights Of BOP 13-14

CONCLUSION 15

CAD Current Account deficit occurs when a country’s total imports of

goods and services exceeds total exports of goods and services. CAD are usually measured as a percentage of GDP

Current Account is the sum of the balance of trade, net factor income and net transfer payments.


EXPORT IMPORT

Balance of payments shows the all financial transactions between one country and the rest of the world.

It mainly deals with

Balance of trade

Earning from Investments

Cash Transfers


CALCULATION OF CAD


In a Simply way

CA = (X-M) + NY +NCT

Where,

CA – Current Account

X & M – Export & Imports

NY – Net Income

NCT – Net Cash transfers

CAUSES OF CAD

High Consumption Imports of Crude Oil Gold Imports Decrease In FDI Low Savings Fixed Exchange Rates 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


• DECLINE IN COMPETITIVENESS: In the UK there has been a decline in the exporting manufacturing sector, because it has struggled to compete with developing countries in the far east. This has led to a persistent deficit in the balance of trade.

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 UK’s main trading partners experience negative economic growth then they will buy less of our exports, worsening the current account.


CONSEQUENCES OF CAD

• When a country has current account deficit it becomes a “Debtor” to the whole world. It “owes” foreign exchange to the tune of deficit. To nullify this debt the government had to attract overseas investors who bring capital to invest in India.

1. RUPEE DEPRECIATION – Depreciation In rupee value is expressed in 2 ways

Internally – inflation

Externally- fall in exchange value.


2. HIGH RATE OF INFLATION – With inflation whole country suffers increase in costs. This makes exports less competitive and imports more competitive.

3. UNEMPLOYMENT - The unemployment scenario in India has always been quite active with a huge population and slow growth of job opportunities. There are various effects of unemployment

Slack in flow of money

Reduction in consumer expenditure

Decrease in return on investment.

4. Outflow of foreign currency due to fear of value erosion, leading to further economic deterioration.


IMPORTS & EXPORTSImports Exports

Crude Oil Petroleum Products

Gold & Silver Gems & Jewellery

Electronic Goods Pharma Products

Pearls & Precious Stones Manufactures of Metals

Transport equipments Rubber, Glass & Products

Iron & Steel Cotton & Fabrics


HIGHLIGHTS OF BOP

• Current account deficit (CAD) declined sharply from a record high of US$ 88.2 billion (4.7 per cent of gross domestic product [GDP] in 2012-13 to US$ 32.4 billion (1.7 per cent of GDP) in 2013-14.

• India’s current account deficit (CAD) moderated sharply to 3.6 per cent of GDP in Q4 of 2012-13 from a historically high level of 6.7 per cent of GDP in Q3 of 2012-13 as trade deficit narrowed.

• Merchandise imports recorded a marginal decline of 1.0 per cent in Q4 of 2012-13 as against an increase of 22.6 per cent in Q4 of 2011-12. Essentially non-oil non-gold component of imports showed a decline, reflecting slowdown in domestic economic activity.


REFERENCES

http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28955

http://indiabudget.nic.in/es2013-14/echap-06.pdf

http://indiabudget.nic.in/

http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28955

http://indiabudget.nic.in/es2013-14/echap-06.pdf

http://indiabudget.nic.in/

CONCLUSION

• Finance minister appeals to people not to buy so much gold. The government increased import duty on gold to 4 to 6%. It also puts restrictions on banks & NBFC’s for providing loans against gold coins as well as units of gold.

• India is drawing up policies to boost its defense industry, as the government looks to increase local arms purchases and reduce imports.


causes, consequences of cad & steps taken by government

Economy & Finance