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What the article is about?
- Talks about probable increase in current account deficit and suggests reviewing the fiscal policy.
Syllabus: GS3 Indian economy
What is current account deficit?
- CAD is the shortfall between the money received by selling products to the other countries and the money spent to buy goods and services from other nations.
- Economic policy makers are concerned about the CAD widening sharply from 1.2% of GDP last year
Causes of concern:
- Tightening of monetary policies by U.S. federal reserve.
- Dip in assets markets, which can affect the sentiment and consumption.
- Persistent geopolitical tensions.
Measures by central bank and the government:
- Interest rates hikes.
- Measures to reduce outflow of dollar.
- Imposition of windfall taxes (a tax levied by government against certain industries when
- economic conditions allow these industries to experience above- average profits).
- Higher import duties on forex-drainers like gold.
Ray of hope:
- Healthy GST (goods and services tax) collection.
- Slipping of industrial metal prices.
- Prices of some food articles have fallen off their peaks.
- Descending crude oil prices.
Expected slow down of developing economies and increased supply of shale oil, can aid in
lowering the crude oil prices and full year deficits may improve.
Suggestions to improve CAD:
- Government can consider reviewing its fiscal policy.
- More measures to stimulate growth can be taken.
- Steps to mitigate effects of high inflation can be taken.
