Tackling Current Account Deficit in India

6105 Words Apr 18th, 2013 25 Pages
TACKLING CURRENT ACCOUNT DEFICIT IN INDIA

INTRODUCTION
There has been a sharp increase in the Current Account Deficit in Indian economy. In previous years the current account deficit increased moderate rate but in the fiscal year of 2011-12 there was sharp increase in current account deficit, marking a rise to nearly 4.2 per cent of GDP. High current account deficit has always posed serious implications for an economy and therefore for India it is a matter of concern. This research paper deals with the impact of current account deficit on the Indian economy and analyzes the causes and measures to tackle current account deficit. The researcher has studies the current account deficit. This research paper has been divided into 5 sections.
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It is usually measured as percentage of GDP.5

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T.R.Jain and V.K.Ohri, INTRODUCTORY MICROECONOMICS AND MACROECONOMICS, 275, 6th edn.(2008). Id. 3 T.R.Jain and V.K.Ohri, Supra note 1, 276-277. 4 Id. 5 A.Ghosh and U.Ramakrishnan, CADs: Is There a Problem?, (March 28, 2012), INTERNATIONAL MONETARY FUND, available at: http://www.imf.org/external/pubs/ft/fandd/basics/current.htm (last visited on December 29, 2012).

NATIONAL LAW SCHOOL OF INDIA UNIVERSITY

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TACKLING CURRENT ACCOUNT DEFICIT IN INDIA Causes and cures of CAD
Deficit in current account depends on many factors and it can be cure. There are measures which can correct the problem of CAD.

Fiscal deficit - When there is huge development expenditure by the government, demand of domestic goods as well as demand of imported goods increases and causes deficit.6 So by reducing the fiscal deficit, CAD can be improved. They have a positive relation. For instance in the following graph, as the fiscal account deficit is increasing in the US, it has led to a current account deficit.7

Figure 1

Inflation in the domestic country can led to increase in imports of essential goods. Essentially imports become more desirable in case of and make exports less desirable because of the increase in the price of domestically produced goods. This drives the economy
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REPORT OF THE COMMITTEE ON ROADMAP FOR FISCAL CONSOLIDATION, (September 2012), Available
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