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The surplus in the current account in India can happen when
1. Contraction in the trade deficit
2. Net services receipts increases sequentially.
3. Growth in remittances by Indians employed overseas.
4. Record inflow of foreign direct investment and foreign portfolio investment.
Select the correct answer code:
- a)1, 2, 4
- b)1, 3, 4
- c)2, 3, 4
- d)1, 2, 3, 4
Correct answer is option 'D'. Can you explain this answer?
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The surplus in the current accountin India can happen when1. Contracti...
India’s current account balance saw a far lower surplus of $6.5 billion (0.9% of GDP) in the first quarter ended June 30, (Q1FY22) compared with a surplus of $19.1 billion (3.7% of GDP) a year earlier.
The surplus in the current account in Q1FY22 compared with the previous quarter was primarily on account of contraction in the trade deficit to $30.7 billion from $41.7 billion in the preceding quarter, and an increase in net services receipts, as per data provided by the (RBI).
Net services receipts increased, both sequentially and on a year-on-year basis, on the back of robust performance of net exports of computer and business services. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $ 20.9 billion, an increase of 14.8% from their level a year earlier.
In the financial account, net foreign direct investment recorded inflow of $11.9 billion compared with an outflow of $0.5 billion.
Net foreign portfolio investment was $ 0.4 billion ($0.6 billion), data showed.
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The surplus in the current accountin India can happen when1. Contracti...
The surplus in the current account in India can happen due to several factors, including a contraction in the trade deficit, an increase in net services receipts, growth in remittances by Indians employed overseas, and a record inflow of foreign direct investment and foreign portfolio investment. Let's discuss each of these factors in detail:
1. Contraction in the trade deficit: The trade deficit refers to the difference between the value of a country's exports and the value of its imports. A contraction in the trade deficit means that the value of exports is greater than the value of imports. This can lead to a surplus in the current account as it indicates that the country is earning more from its exports than it is spending on imports.
2. Net services receipts increase sequentially: Services receipts include earnings from sectors such as tourism, transportation, software services, and financial services. An increase in net services receipts means that the country is earning more from these services than it is spending on them. This can contribute to a surplus in the current account.
3. Growth in remittances by Indians employed overseas: Remittances refer to the money sent by individuals working abroad back to their home country. India is one of the largest recipients of remittances globally. If there is a growth in remittances by Indians employed overseas, it means that more money is flowing into the country, contributing to a surplus in the current account.
4. Record inflow of foreign direct investment and foreign portfolio investment: Foreign direct investment (FDI) refers to investments made by foreign companies in the domestic economy, while foreign portfolio investment (FPI) refers to investments made by foreign individuals or institutions in the stock market or other financial assets. A record inflow of FDI and FPI indicates that foreign investors have confidence in the Indian economy, leading to an increase in capital inflows and a surplus in the current account.
In conclusion, the correct answer is option 'D' (1, 2, 3, 4). A surplus in the current account in India can occur when there is a contraction in the trade deficit, an increase in net services receipts, growth in remittances by Indians employed overseas, and a record inflow of foreign direct investment and foreign portfolio investment. These factors contribute to a favorable balance of payments position for the country.
1. Contraction in the trade deficit: The trade deficit refers to the difference between the value of a country's exports and the value of its imports. A contraction in the trade deficit means that the value of exports is greater than the value of imports. This can lead to a surplus in the current account as it indicates that the country is earning more from its exports than it is spending on imports.
2. Net services receipts increase sequentially: Services receipts include earnings from sectors such as tourism, transportation, software services, and financial services. An increase in net services receipts means that the country is earning more from these services than it is spending on them. This can contribute to a surplus in the current account.
3. Growth in remittances by Indians employed overseas: Remittances refer to the money sent by individuals working abroad back to their home country. India is one of the largest recipients of remittances globally. If there is a growth in remittances by Indians employed overseas, it means that more money is flowing into the country, contributing to a surplus in the current account.
4. Record inflow of foreign direct investment and foreign portfolio investment: Foreign direct investment (FDI) refers to investments made by foreign companies in the domestic economy, while foreign portfolio investment (FPI) refers to investments made by foreign individuals or institutions in the stock market or other financial assets. A record inflow of FDI and FPI indicates that foreign investors have confidence in the Indian economy, leading to an increase in capital inflows and a surplus in the current account.
In conclusion, the correct answer is option 'D' (1, 2, 3, 4). A surplus in the current account in India can occur when there is a contraction in the trade deficit, an increase in net services receipts, growth in remittances by Indians employed overseas, and a record inflow of foreign direct investment and foreign portfolio investment. These factors contribute to a favorable balance of payments position for the country.
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