Current Account Deficit(CAD) is an economic term where country's import exceeds the exports.
So I was going through few of the data from tradingeconomics.com, where I found some good Insight which I would like to share with you all.
So during CAD, a home country purchases the more goods from the foreign country because:
1) Either a home country lacks enough resources to produce.
2) Or a home country lacks the Skilled and efficient workforce to produce more goods in the International market.
Both the reasons are general but there can be third reasons too which the country is saving its limited resources for future.
As per the recent report, India's CAD is expected to touch $40 billion, or 1.5 percent of GDP(Nomura report), which is the huge number. Now the question is that what we import?
Basically many things but the major portion is crude oil from Gulf countries like Saudi Arabia. Now this means that Saudis are depleting its limited oil resources while India is crediting to Saudis. While obviously today's Saudis are very prosperous with high Riyal values whereas India is not so rich but has enormous potential. Why this potential? Because we have many un-explored resources to tap. But this is partially correct. Why? Because in my opinion, the most important resources for any country is their HUMAN resources, which we have that luxury due to proliferating demographic dividend. Henceforth government of India is taking many steps to generate jobs like National Manufacturing policies which focusses on generating 100 million jobs by next decades or so. One more reason is that good Human resources can be a game changer for a country's progress. While we see turbulent West Asia despite good potential struggling because of their poor utilisation of their human resources, enormous division based on many identities while in Western countries in spite of all development is facing issues like radicalization, moral turpitude. Our neighbour Pakistan is another good example of mismanagement of their human resources. I would make one point here that if you don't have natural resources but you have potential, ethical-moral, pro-ecological and humane human resources then any country can rise up anytime. For example, Japan rose up again after the disaster of world wars and not having enough natural resources like iron but still became the largest producer of Steel during 1960s.
Comparing India and Saudis:
This is India's CAD since independence, as we observe when the economy was not opened, CAD was relatively stable to ZERO. While when India opened up then government depreciated Rupees and making Indian manufacturing competitive enough and thus baton of doing labour intensive work was passed on us while developed economy can relax and save up its resources.
As you can see by early 2000 we became Current Account Surplus country and thus we had an enormous flow of foreign currency. But this was for few years and demand for oil and other resources grew while whole India was modernizing.
This is Saudi Arabia's CAD in past decade or so. Now, they have oil so they can earn and develop more. But things started changing from 2010.Why? Because it was a period when the USA did some mind-boggling disruption by bringing the efficient way of utilizing shale gas, so this means less dependency on Saudis and other OPEC country. But at the same time, India demand for Energy also increased. As we proceed to 2015-2016 we observe that Saudis are becoming CAD? Is this mean that Saudis is drained out of their resources? This is true to some extent because Oil is a non-renewable source of energy but also factor like climate change consciousness after Paris summit is another factor.
So CAD is not bad at all because:
1) You are saving your limited resources.
2) You are mobilizing your manpower in the economy.
3) You are busy in the capacity building which can be helpful for future generation.
In this case, India can learn a lesson to be prudent enough about the water resources and bringing policy changes in replacing water-guzzling crops exports and rather import those from other country and focus on dry crops.
So I was going through few of the data from tradingeconomics.com, where I found some good Insight which I would like to share with you all.
So during CAD, a home country purchases the more goods from the foreign country because:
1) Either a home country lacks enough resources to produce.
2) Or a home country lacks the Skilled and efficient workforce to produce more goods in the International market.
Both the reasons are general but there can be third reasons too which the country is saving its limited resources for future.
As per the recent report, India's CAD is expected to touch $40 billion, or 1.5 percent of GDP(Nomura report), which is the huge number. Now the question is that what we import?
Basically many things but the major portion is crude oil from Gulf countries like Saudi Arabia. Now this means that Saudis are depleting its limited oil resources while India is crediting to Saudis. While obviously today's Saudis are very prosperous with high Riyal values whereas India is not so rich but has enormous potential. Why this potential? Because we have many un-explored resources to tap. But this is partially correct. Why? Because in my opinion, the most important resources for any country is their HUMAN resources, which we have that luxury due to proliferating demographic dividend. Henceforth government of India is taking many steps to generate jobs like National Manufacturing policies which focusses on generating 100 million jobs by next decades or so. One more reason is that good Human resources can be a game changer for a country's progress. While we see turbulent West Asia despite good potential struggling because of their poor utilisation of their human resources, enormous division based on many identities while in Western countries in spite of all development is facing issues like radicalization, moral turpitude. Our neighbour Pakistan is another good example of mismanagement of their human resources. I would make one point here that if you don't have natural resources but you have potential, ethical-moral, pro-ecological and humane human resources then any country can rise up anytime. For example, Japan rose up again after the disaster of world wars and not having enough natural resources like iron but still became the largest producer of Steel during 1960s.
Comparing India and Saudis:
This is India's CAD since independence, as we observe when the economy was not opened, CAD was relatively stable to ZERO. While when India opened up then government depreciated Rupees and making Indian manufacturing competitive enough and thus baton of doing labour intensive work was passed on us while developed economy can relax and save up its resources.
As you can see by early 2000 we became Current Account Surplus country and thus we had an enormous flow of foreign currency. But this was for few years and demand for oil and other resources grew while whole India was modernizing.
This is Saudi Arabia's CAD in past decade or so. Now, they have oil so they can earn and develop more. But things started changing from 2010.Why? Because it was a period when the USA did some mind-boggling disruption by bringing the efficient way of utilizing shale gas, so this means less dependency on Saudis and other OPEC country. But at the same time, India demand for Energy also increased. As we proceed to 2015-2016 we observe that Saudis are becoming CAD? Is this mean that Saudis is drained out of their resources? This is true to some extent because Oil is a non-renewable source of energy but also factor like climate change consciousness after Paris summit is another factor.
So CAD is not bad at all because:
1) You are saving your limited resources.
2) You are mobilizing your manpower in the economy.
3) You are busy in the capacity building which can be helpful for future generation.
In this case, India can learn a lesson to be prudent enough about the water resources and bringing policy changes in replacing water-guzzling crops exports and rather import those from other country and focus on dry crops.
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