Expert Zone
Straight from the Specialists
India’s current account deficit: solution lies in exports
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The U.S. dollar is the major currency for international trade. Most countries use it to pay for their imports and also peg the dollar for exporting products and services.
The balance of trade (net import or export) would determine if a country is a net payer or a receiver of dollars. Trade, along with other dollar inflows (portfolio/FII, FDI, inward remittances), determines the overall availability of the international currency for a country to engage itself in the global economy. This also has a bearing on determining the exchange rate of a country’s own currency with that of the dollar.
An account that keeps a tab on the dollar expenses and dollar inflows for a period (normally an accounting year) is commonly known as the ‘current account’. A negative balance amounts to current account deficit (CAD), indicating broadly that the country’s imports exceed exports.
India has been persistently running a CAD. The deficit has widened in recent years as a percentage of GDP and has become a concern for policymakers, economists and global investors.
Where will the rupee finally rest?
(The views expressed in this column are the author’s own and do not represent those of Reuters)
For nearly a decade, the rupee has been stable — moving in the narrow range of 44-45 to the dollar. But since August last year, the rupee began to slide and in less than six months was down 23 percent.
Why the rupee should harden
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The rupee has been uneasy and the stock market nervous since the beginning of this year. The two are not unrelated. For, the fall of the market has been due to absence of FII investment which also deprived the currency market of dollar supply. The outflows more or less matched the inflows and the rupee, with corresponding fluctuations, ended up in August where it had started in January.
