Post on 22-Nov-2014
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“STEPS THE GOVERMENT TAKEN TO REIN IN CURRENT ACCOUNT DEFICIT CAN
DIRECTLY AFFECT YOU” –EVALUATE THE STATEMENTS
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GROUP MEMBERSIDENTIFICATION NUMBER
Sureka Tatavarty
Shobha Rani M
Srishti Mathur
Sirisha B
Bharath Kumar A
FACULTY : P V L RAJU CENTRE : HYDERABADBATCH : PGDBM - 5
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CONTENTS
SLIDE NUMBER
Current Account Deficit 4-6
Causes of CAD 7-8
Consequences of CAD 9-10
Imports - Exports 11-12
Highlights Of BOP 13-14
CONCLUSION 15
CAD Current Account deficit occurs when a country’s total imports of
goods and services exceeds total exports of goods and services. CAD are usually measured as a percentage of GDP
Current Account is the sum of the balance of trade, net factor income and net transfer payments.
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EXPORT IMPORT
Balance of payments shows the all financial transactions between one country and the rest of the world.
It mainly deals with
Balance of trade
Earning from Investments
Cash Transfers
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CALCULATION OF CAD
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In a Simply way
CA = (X-M) + NY +NCT
Where,
CA – Current Account
X & M – Export & Imports
NY – Net Income
NCT – Net Cash transfers
CAUSES OF CAD
High Consumption Imports of Crude Oil Gold Imports Decrease In FDI Low Savings Fixed Exchange Rates Economic Growth - If there is an increase in national income,
people will tend to have more disposable income to consume goods. If domestic producers can not meet the domestic demand, consumers will have to import goods from abroad
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• DECLINE IN COMPETITIVENESS: In the UK there has been a decline in the exporting manufacturing sector, because it has struggled to compete with developing countries in the far east. This has led to a persistent deficit in the balance of trade.
1. Higher inflation: This makes exports less competitive and imports more competitive. However this factor may be offset by a decline in the value of sterling.
2. Recession in other Countries: If the UK’s main trading partners experience negative economic growth then they will buy less of our exports, worsening the current account.
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CONSEQUENCES OF CAD
• When a country has current account deficit it becomes a “Debtor” to the whole world. It “owes” foreign exchange to the tune of deficit. To nullify this debt the government had to attract overseas investors who bring capital to invest in India.
1. RUPEE DEPRECIATION – Depreciation In rupee value is expressed in 2 ways
Internally – inflation
Externally- fall in exchange value.
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2. HIGH RATE OF INFLATION – With inflation whole country suffers increase in costs. This makes exports less competitive and imports more competitive.
3. UNEMPLOYMENT - The unemployment scenario in India has always been quite active with a huge population and slow growth of job opportunities. There are various effects of unemployment
Slack in flow of money
Reduction in consumer expenditure
Decrease in return on investment.
4. Outflow of foreign currency due to fear of value erosion, leading to further economic deterioration.
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IMPORTS & EXPORTSImports Exports
Crude Oil Petroleum Products
Gold & Silver Gems & Jewellery
Electronic Goods Pharma Products
Pearls & Precious Stones Manufactures of Metals
Transport equipments Rubber, Glass & Products
Iron & Steel Cotton & Fabrics
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HIGHLIGHTS OF BOP
• Current account deficit (CAD) declined sharply from a record high of US$ 88.2 billion (4.7 per cent of gross domestic product [GDP] in 2012-13 to US$ 32.4 billion (1.7 per cent of GDP) in 2013-14.
• India’s current account deficit (CAD) moderated sharply to 3.6 per cent of GDP in Q4 of 2012-13 from a historically high level of 6.7 per cent of GDP in Q3 of 2012-13 as trade deficit narrowed.
• Merchandise imports recorded a marginal decline of 1.0 per cent in Q4 of 2012-13 as against an increase of 22.6 per cent in Q4 of 2011-12. Essentially non-oil non-gold component of imports showed a decline, reflecting slowdown in domestic economic activity.
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REFERENCES
http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28955
http://indiabudget.nic.in/es2013-14/echap-06.pdf
http://indiabudget.nic.in/
CONCLUSION
• Finance minister appeals to people not to buy so much gold. The government increased import duty on gold to 4 to 6%. It also puts restrictions on banks & NBFC’s for providing loans against gold coins as well as units of gold.
• India is drawing up policies to boost its defense industry, as the government looks to increase local arms purchases and reduce imports.
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