Current Account Deficit or CAD is the shortfall between the money flowing in on exports, and the money flowing out on imports

• It is part of the Balance of Payments (BoP).

Components of CAD

• Trade Balance: The difference between exports and imports of physical goods (e.g., oil, electronics, gold).
• Invisibles: Trade in services like IT, tourism, banking, and shipping.
• Net Income: Profit, dividends, and interest payments moving into or out of the country.
• Net Transfers: Unilateral transfers such as worker remittances (money sent home by citizens abroad), gifts, and foreign aid.

Causes of CAD

• High Import Dependency: Significant dependence on imported crude oil.
• Gold Imports: High demand for physical gold, silver.
• Global Commodity Prices: Rising commodity prices increase the cost of imports.
• Weak Export Growth: Slow growth in exports compared to imports.

Impact on the Economy

• Depreciation of domestic currency.
• Depletion of the Forex Reserve 
• Causes inflation of goods.

Source: The Hindu