Question

Select a country of your choice (other than Saudi Arabia) and observe the last balance of payments issued by that country. Does the country run a current account deficit or surplus? What are the driving factors for the deficit or surplus? What are the implications of the current account deficit or surplus for the overall economy? What actions may better the nation’s situation? Explain.

Answer 1

Ans -

1) Country - INDIA

2) Balance Of Payment - US$ 19.8 billion during April-June 2020 (excluding valuation effects), US$ 27.9 billion during April-June 2020 (including valuation effects)

3) Current Account Balance -  Surplus

4) Driving Factors -  

- Due to sharp contraction in trade deficit to $10 billion

- Country’s merchandise imports declined sharply due to weak domestic demand.

- Net earnings from computer services (which helped in Current Account Surplus)

- Primary income account-  net overseas investment income payments increased to $7.7 billion, from $6.3 billion a year ago.

- Net inflow on account of non-resident deposits increased to $3 billion, from $2.8 billion.

- Lower domestic demand for gold imports have also reduced the import bill.

5) Implications of these factors on overall Economy -

- It will allow RBI (Central Bank Of India) to increase its size of Forex Reserves.

- Higher share of output is exported than consumpation.

- Rupee ( indian currency ) could appreciate in the near future due to High demand for Currency

6) Actions to Better Nation's Situation -

- If one takes it as negative sign than it can lead to recession type of situation government need to keep in mind.

- Need to focus on Domestic demand by increasing liquidity in the market.

- When country sees Boom period their is chance of Bust in coming period so government need to be careful about it and need to take right measure accordingly with central bank.