Introduction:

The current account of a nation serves as a record of its financial and commercial dealings with the rest of the globe. The difference between a country’s exports and imports of goods and services, plus its net income and transfer payments, is what is known as the current account balance. A current account deficit occurs when a country imports more goods and services than it exports, which causes a currency outflow. This essay will explore what a current account deficit is, how India is now experiencing one, and potential solutions.

A current account deficit is what?

When a nation’s imports of goods and services exceed its exports, a current account deficit results.Since 2005, India has had a sustained current account deficit. The current account deficit for India in 2018–19 was 2.1% of its GDP (GDP). India has a current account deficit issue for a number of reasons.

First off, India is a net importer of crude oil and heavily depends on imports to satisfy its energy requirements. A sizable amount of India’s imports are made up of oil, and the country’s current account deficit has been exacerbated by the high price of oil on the world market. Together with imports of oil, imports of gold constitute a significant factor in the current account deficit.

Second, India’s exports have lagged, which has reduced its market share internationally. India has been losing market share to other nations like China and Vietnam as a result of its inability to keep up with the global demand for exports.

thirdly , foreign investment has been declining in India over the past few years. One strategy to finance the current account deficit is by reducing capital inflows, which has been affected by the downturn in foreign investment.

finally , the COVID-19 epidemic has had a negative impact on India’s services industry, which makes up a sizeable amount of its exports.
The travel restrictions associated to the epidemic have had a significant negative impact on the travel and tourism sector, which is a significant contributor to India’s exports of services.

How can India fix its problem with a current account deficit?

India has a number of options for dealing with its current account deficit. These actions consist of:
India needs to concentrate on promoting its exports in order to lessen its reliance on imports. To increase exporters’ competitiveness in the international market, the government can provide incentives to them, such as tax reductions.
India has to cut back on its imports, especially in areas where domestic manufacturing can take their place. The government can encourage the home manufacture of items and services that are currently imported, such as electronics.
Raising foreign investment is necessary for India to cover its current account deficit. To entice foreign investors to invest in India, the government may provide advantages such as tax reductions.

Remittance encouragement: India can promote remittances from its expatriate nationals, which could assist pay for the current account deficit. The government may provide incentives, such as tax cuts, to citizens who send money back to India.

Export diversification is necessary for India in order to lessen its dependency on a select few products. To grow its current account deficit, the government should encourage exports of high-value-added goods like software and medicines.

this topic is very important for civil service aspirants (UPSC. MPPSC)