Current Account Deficit : A hype or Reality? : the falling rupee has something to share !!!
India's Current account deficit, a common term cited for all reasons, lets analyze the whole story.
Current Account Deficit: When a country buys more than what it sells, a deficit in the account of trade is eventual and the difference is called CAD.
Present day economies are under stress, economist are trying hard to keep them stable. Post globalization every incident in the world has its impact in every nook and corner. Economies suffer when ever incidents like WTC blast, Euro crisis or US mortgage crisis.
Getting into our stuff India is under current account deficit since UPA 1, the datasheet below gives clear idea ::
The Picture above clearly depicts the CAD, its increased slowly from the last 8 years, which the Financial ministry is not aware of !!!
Rupee had to suffer for the same reason, however its quite strange that @chidambaram pointing Gold imports. Indians are fond of Gold and its Indian heritage which can't be stopped because economy isn't doing good. For a common Indian, who wants to buy a gold chain or a gold ring for his loved ones with his hard earned money feels disgusting.
In a diverse country like ours, people from various regions, religions, culture do have festivals or functions every other day. they find these festive or function only complete when they can gift gold.
Keeping all sentiments aside here are the actions being taken by Finance Ministry to keep thie deficit down:
1. Revisiting the FDI policy and imporve the percentage of foreign investors in Indian Firms.
No-comment: this helps in improving the foreign currency in current account and thus helps in reducing the CAD , how-ever this in longer run again helps in increasing CAD, any investor only invests for profits so they will have to take back their investments with profits someday or the other.
"We can't expect a Nokia battery for a Sony mobile, even if this happens its just like Apple teaching Microsoft lessons in understanding customer eccentricity ".
2. Fiscal Consolidation:
this means combining all the assets, liabilities into one single entity.
No-Comment: This helps in giving statics of the economy which can give certain forecasts to investors and analysts, but how is this justifiable ? Why haven't the authorities done this yet? even if everything is consolidated can this change the story ?
Does the consolidation remove the deficit from balance sheet ?
"you can't mix milk in water to dilute it, if someone has to dilute water then its his own fantasy which this world can't accept."
3. Moderating Inflation;
Inflation is a bit of tough story to explain:
Inflation is rate in which a certain quantity of goods are available for the standard currency. further simplifying this, hope i haven't given a simplistic explanation.
No-comment:
the price index clearly shows how people are facing inflation since 2002, these Petroleum products lack regularization, which yielded drastic results, economic slow down, unemployment, Government had permitted several Engg. Colleges but had not been successful in providing adequate infrastructure and employment opportunities to those who graduate. The creamy layer from IIIT and IIMs are succesful in getting their passports, those who are left fight to survive in the information processing industry or in voice processing. Villages have lost their glory and cities are after real estate waiting for a economic recession.
4. Good Will for India:
India has a growth story which the world had faith in.
No-Comment:
the data sheets show the incapability of the economy under the great economic leaders but the balance sheet unaware of these facts still keeps India down!!!
"you can't catch a unplugged grenade saying, I'm confident about the manufacturer ot this whose success rate is quite low !!!"
5. 9 Month delivery :
Economic reforms occur slowly, its not a one day international match to expect a 6 or a wicket for every ball
No-Comment:
Even in one day international match of cricket if every wall is a six or a boundary, no team had ever scored 1800 in an single innings, or been all out in 3 overs!! but there also exist a power play to keep all chances alive!!
Facts:
If its true that economy had improved in the last 9 month period then why does the CAD haunt so much now days but not 9 month earlier ?
From 2011 to 2012, Indian Rupee had fell from a level for 45 to 54, and was stable till April 2013, being aware of this when economists were not able to make corrections or back trace and reverse the situation for one long year.
this year when they face the same issue they are now confident to give assurance that Rupee will not further fall down from current levels reching 60!!!
Is this situation not alarming to any of the policy makers ?? if current trend continues the FII may leave India and the glory of ever growing India will also fade soon.
The classic business players from India will go abroad to have deals wtth a better foreign currency, who would like to pay more money for any commodity for the simple reason which they are no where directly related to ??
Example: Apollo tyres had went on shopping Copper for 2.5B $ they went on for whole cash deal which it borrowed. they had to repay this. if Apollo had to pay it in the current levels of rupee their repayment would stress their balance sheet too much to bear. previously 2$ were 90 rupess and now 2$ are 120 approx. so they pay almost one dollar more. this can take them from 2.5B $ at levels for 45 to 3.5B $ at current rate of 60 rupees.
" Economy is not any where considered to be a black box or a bakers hidden secret which only unveils after baking!!"
Gold Mania:
The Gold Mania in India is since the age of Adam, India is the worlds favorite for selling ornaments, this hadn't changed from Indus valley civilization till date. here are the facts of Gold imports:
Gold has been imported more and more every year, the gold business is also at peaks since independence, this creates enough burden to Balance sheet every year, however they haven't ever reached a stage which could drag down the countries currrency down.
Gold had reached price above 30,0000 Rupees in recent years and had drastically come down, the people who had been investing for short term had sold them at a stop loss levels of 27000 and investors, have found this opportunity to accumulate their wealth in this form when it been back tracing its levels to 24000.
Even governments import duty of 8% can't keep them down from buying it.
however being so called financial analysts who would buy gold for themselves have failed to understand their own in interest on the balance sheet burden. Finance ministers plea for not buying gold for atleast one year can definitely help if he assures a price down symptoms or any such indications to public.
Enough of criticism :
Here are some ways to curb this CAD.
1. Encourage Indian manufacturers who produce goods in the same segments where maximum imports occur.
2. Improve exports and provide benefits to those who export to foreign countries
3. Try to sell goods to those countries where the CAD yields max from.
4. Try to retain investments from FII's by allowing them to take less profits from India to foreign countries and promote them to improve assets in India.
5. Discourage imports and exports of oil and petroleum products which are never in sync. since independence.
5. Encourage Indian industries to go abroad and establish business over there and get their profits to India at lowers rates of exchange.
Final word:
The growth story is too hard to show on paper if polocies are not strict enough to resolve the issue rather quoting a simplistic solution.
Current Account Deficit: When a country buys more than what it sells, a deficit in the account of trade is eventual and the difference is called CAD.
Present day economies are under stress, economist are trying hard to keep them stable. Post globalization every incident in the world has its impact in every nook and corner. Economies suffer when ever incidents like WTC blast, Euro crisis or US mortgage crisis.
Getting into our stuff India is under current account deficit since UPA 1, the datasheet below gives clear idea ::
Rupee had to suffer for the same reason, however its quite strange that @chidambaram pointing Gold imports. Indians are fond of Gold and its Indian heritage which can't be stopped because economy isn't doing good. For a common Indian, who wants to buy a gold chain or a gold ring for his loved ones with his hard earned money feels disgusting.
In a diverse country like ours, people from various regions, religions, culture do have festivals or functions every other day. they find these festive or function only complete when they can gift gold.
Keeping all sentiments aside here are the actions being taken by Finance Ministry to keep thie deficit down:
1. Revisiting the FDI policy and imporve the percentage of foreign investors in Indian Firms.
No-comment: this helps in improving the foreign currency in current account and thus helps in reducing the CAD , how-ever this in longer run again helps in increasing CAD, any investor only invests for profits so they will have to take back their investments with profits someday or the other.
"We can't expect a Nokia battery for a Sony mobile, even if this happens its just like Apple teaching Microsoft lessons in understanding customer eccentricity ".
2. Fiscal Consolidation:
this means combining all the assets, liabilities into one single entity.
No-Comment: This helps in giving statics of the economy which can give certain forecasts to investors and analysts, but how is this justifiable ? Why haven't the authorities done this yet? even if everything is consolidated can this change the story ?
Does the consolidation remove the deficit from balance sheet ?
"you can't mix milk in water to dilute it, if someone has to dilute water then its his own fantasy which this world can't accept."
3. Moderating Inflation;
Inflation is a bit of tough story to explain:
Inflation is rate in which a certain quantity of goods are available for the standard currency. further simplifying this, hope i haven't given a simplistic explanation.
No-comment:
the price index clearly shows how people are facing inflation since 2002, these Petroleum products lack regularization, which yielded drastic results, economic slow down, unemployment, Government had permitted several Engg. Colleges but had not been successful in providing adequate infrastructure and employment opportunities to those who graduate. The creamy layer from IIIT and IIMs are succesful in getting their passports, those who are left fight to survive in the information processing industry or in voice processing. Villages have lost their glory and cities are after real estate waiting for a economic recession.
4. Good Will for India:
India has a growth story which the world had faith in.
No-Comment:
the data sheets show the incapability of the economy under the great economic leaders but the balance sheet unaware of these facts still keeps India down!!!
"you can't catch a unplugged grenade saying, I'm confident about the manufacturer ot this whose success rate is quite low !!!"
5. 9 Month delivery :
Economic reforms occur slowly, its not a one day international match to expect a 6 or a wicket for every ball
No-Comment:
Even in one day international match of cricket if every wall is a six or a boundary, no team had ever scored 1800 in an single innings, or been all out in 3 overs!! but there also exist a power play to keep all chances alive!!
Facts:
If its true that economy had improved in the last 9 month period then why does the CAD haunt so much now days but not 9 month earlier ?
From 2011 to 2012, Indian Rupee had fell from a level for 45 to 54, and was stable till April 2013, being aware of this when economists were not able to make corrections or back trace and reverse the situation for one long year.
this year when they face the same issue they are now confident to give assurance that Rupee will not further fall down from current levels reching 60!!!
Is this situation not alarming to any of the policy makers ?? if current trend continues the FII may leave India and the glory of ever growing India will also fade soon.
The classic business players from India will go abroad to have deals wtth a better foreign currency, who would like to pay more money for any commodity for the simple reason which they are no where directly related to ??
Example: Apollo tyres had went on shopping Copper for 2.5B $ they went on for whole cash deal which it borrowed. they had to repay this. if Apollo had to pay it in the current levels of rupee their repayment would stress their balance sheet too much to bear. previously 2$ were 90 rupess and now 2$ are 120 approx. so they pay almost one dollar more. this can take them from 2.5B $ at levels for 45 to 3.5B $ at current rate of 60 rupees.
" Economy is not any where considered to be a black box or a bakers hidden secret which only unveils after baking!!"
Gold Mania:
The Gold Mania in India is since the age of Adam, India is the worlds favorite for selling ornaments, this hadn't changed from Indus valley civilization till date. here are the facts of Gold imports:
Gold has been imported more and more every year, the gold business is also at peaks since independence, this creates enough burden to Balance sheet every year, however they haven't ever reached a stage which could drag down the countries currrency down.
Gold had reached price above 30,0000 Rupees in recent years and had drastically come down, the people who had been investing for short term had sold them at a stop loss levels of 27000 and investors, have found this opportunity to accumulate their wealth in this form when it been back tracing its levels to 24000.
Even governments import duty of 8% can't keep them down from buying it.
however being so called financial analysts who would buy gold for themselves have failed to understand their own in interest on the balance sheet burden. Finance ministers plea for not buying gold for atleast one year can definitely help if he assures a price down symptoms or any such indications to public.
Enough of criticism :
Here are some ways to curb this CAD.
1. Encourage Indian manufacturers who produce goods in the same segments where maximum imports occur.
2. Improve exports and provide benefits to those who export to foreign countries
3. Try to sell goods to those countries where the CAD yields max from.
4. Try to retain investments from FII's by allowing them to take less profits from India to foreign countries and promote them to improve assets in India.
5. Discourage imports and exports of oil and petroleum products which are never in sync. since independence.
5. Encourage Indian industries to go abroad and establish business over there and get their profits to India at lowers rates of exchange.
Final word:
The growth story is too hard to show on paper if polocies are not strict enough to resolve the issue rather quoting a simplistic solution.
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