Topic Of The Day:-“Current Account Woes”
Proper Structural Reforms Are Needed To Boost Exports, Reduce Dependence On Imported Oil
The latest trade figures published by the Reserve Bank of India confirm the damage caused by high global oil prices in the last few months. India’s current account deficit (CAD) widened to 2.9% of gross domestic product (GDP) in the July-September quarter, a four-year high, under increasing pressure from the oil bill. This is in contrast to the same quarter a year ago when the CAD was only 1.1% of GDP. The widening of the CAD was due to an increase in the trade deficit, which jumped to $50 billion in the September quarter as compared to $32.5 billion a year ago, due to a higher import bill. The government, however, may not be too worried about the widening CAD figures as the major factor that was behind the phenomenon has abated; global oil prices have dropped sharply since early October. Brent crude is down almost 30% from the high it reached in early October. So the size of the deficit is likely to come down in the quarter ending December. This is not to suggest that all is fine. As usual, medium to long-term risks to the external sector remain. For one, there is the threat of price volatility faced by heavy importers of oil. Unless India manages to diversifyits energy base by tapping into local sources of energy, this will remain a perennial threat to economic stability.A widening current account deficit per se should not be a cause for worry as long as foreign capital inflowsinto the economy are brisk enough to fund its huge import needs. The trouble arises when foreign inflows dry up and restrict the ability to purchase essential imports. So as liquidity conditions continue to tighten across the world, India’s heavy import dependence is a cause for concern. Meanwhile, when Western central banks tighten their monetary policy, the RBI will be forced to tighten its own policy stance in order toretain investment capital and defend the rupee. This will impact domestic economic growth negatively. Each time the external account has come under pressure, the government has simply tried to bring inpiecemeal emergency measures, such as a little opening up of the capital account or ill-advised restrictions on imports. Such a policy obviously manages to only kick the can down the road rather than bring a permanent solution to the problem. In order to bring about any meaningful change, the government should also try implementing proper structural reforms that can boost exports, thus helping fund imports through means other than capital inflows, and end the over-reliance on imported oil.
MEANINGS AND WORDS
1) contrast
Meaning : the state of being strikingly different from something else in juxtaposition or close association(n).
Synonyms : contradiction
Antonyms : agreement
Example : “the day began cold and blustery, in contrast to almost two weeks of uninterrupted sunshine”
2) widening
Meaning : make or become wider(v).
Synonyms : enlarge
Antonyms : compress
Example : “we should widen the scope of our investigation”
3) abated
Meaning : (of something unpleasant or severe) become less intense or widespread(v).
Synonyms : diminish
Antonyms : advance
Example : “the storm suddenly abated”
4) deficit
Meaning : an excess of expenditure or liabilities over income or assets in a given period.(n)
Synonyms : loss
Antonyms : abundance
Example : “an annual operating deficit”
5) diversify
Meaning : make or become more diverse or varied.(V)
Synonyms : expand
Antonyms : continue
Example : “the trilobites diversified into a great number of species”
6) tapping
Meaning : a device by which a flow of liquid or gas from a pipe or container can be controlled(n).
Synonyms : knock
Antonyms : lose
Example : “she turned the cold tap on”
7) perennial
Meaning : lasting or existing for a long or apparently infinite time; enduring or continually recurring.(adj)
Synonyms : recurrent
Antonyms : ceasing
Example : “his perennial distrust of the media”
8) inflows
Meaning : the movement of liquid or air into a place.(n)
Synonyms : incursion
Antonyms : retreat
Example : “an inflow of less salty water”
9) concern
Meaning : relate to; be about.(v)
Synonyms : burden
Antonyms : pastime
Example : “the story concerns a friend of mine”
10) stance
Meaning : the way in which someone stands, especially when deliberately adopted (as in cricket, golf, and other sports); a person’s posture.(n)
Synonyms : attitude
Antonyms : unsteadiness
Example : “she altered her stance, resting all her weight on one leg”
11) retain
Meaning : continue to have (something); keep possession of.(v)
Synonyms : absorb
Antonyms : abandon
Example : “Labour retained the seat”
12) defend
Meaning : resist an attack made on (someone or something); protect from harm or danger.(v)
Synonyms : contend
Antonyms : assist
Example : “we shall defend our island, whatever the cost”
13) piecemeal
Meaning : characterized by unsystematic partial measures taken over a period of time.
Synonyms : gradual
Antonyms : completely
Example : “the village is slowly being killed off by piecemeal development”
14) implement
Meaning : put (a decision, plan, agreement, etc.) into effect.
Synonyms : utensil
Antonyms : exempt
Example : “the scheme to implement student loans”
15) reforms
Meaning : make changes in (something, especially an institution or practice) in order to improve it.(v)
Synonyms : amend
Antonyms : break
Example : “the Bill will reform the tax system”
