- It is a comprehensive record of a country’s economic transactions with the rest of the world.
- It tracks the inflow and outflow of money, showing how much money enters (positive) and exits (negative) the country. A deficit is indicated by a negative sign.
- It BoP reflects the demand for the domestic currency (rupee) against foreign currencies (like the dollar).
- A current account deficit or surplus isn’t inherently good or bad its Context matters:
- Current Account Deficit: Often seen in developing economies like India, which need to import capital goods to build production capacity. Indicates strong demand in the economy.
- Current Account Surplus: Might indicate economic slowdown, as seen during FY2020-21 due to Covid-19 lockdowns.
- Optimal Deficit: A current account deficit of 1.5%-2% of GDP is generally consistent with a GDP growth rate of 7%-8%.
Dig Deeper: What are different types of deficits (Primary, Fiscal, Revenue Etc.) ?
