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DAILY NEWS ANALYSIS

  • 31 December, 2020

  • Min Read

Current Account Surplus

Current Account Surplus

What is the news?

  • India’s current account surplus moderated to $15.5 billion (2.4% of GDP) in the second quarter compared with a $19.2-billion surplus (3.8% of GDP) in the April-June quarter.
  • The country had recorded a deficit of $7.6 billion for the quarter ended June, 2019, as per balance of payment data released by the RBI.

Balance of Payments (BoP)

The balance of payments (BoP) record the transactions in goods, services and assets between residents of a country with the rest of the world.

1) Current Account

  • It records exports and imports in goods and services and transfer payments.
  • Trade in services denoted as invisible trade includes both
  1. Factor income = interest, profits and dividends on our assets abroad minus the income foreigners earn on assets they own in India.
  2. Non-factor income = shipping, banking, insurance, tourism, software services, etc.
  • Transfer payments are receipts which the residents of a country receive ‘for free’, without having to make any present or future payments in return (non debt). They consist of remittances, gifts and grants.
  • The balance of exports and imports of goods is referred to as the trade balance (visible). Adding Trade in services and net transfers to the trade balance, we get the Current Account Balance.

2) Capital Account

  • The capital account records all international purchases and sales of assets such as money, stocks, bonds, etc.

It includes the following:

  • Foreign investment in India (FDI, FII, ADR, Direct purchase of land or assets)
  • External commercial borrowing (IMF, WB, ADB etc.),
  • External assistance & Grants etc.
  • Indian Diaspora maintain deposits in foreign currency in India known as NRI deposit.

Source: TH


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