CBSE Class 12-commerce Answered
How is cancellation of coal blocks by the Supreme Court of India likely to affect our current account deficit
Asked by sreenathsnair123 | 19 Dec, 2018, 07:19: PM
Expert Answer
Cancellation of coal blocks by the Supreme Court of India likely to affect our current account deficit:
- Current account records all the transactions relating to import and export of goods and services and unilateral transfers during a given period of time.
- Export and import of goods is an important transaction takes place in foreign trade. Receipts from export of goods are credit items entered on the positive side of the account and payment for import of goods are the debit items entered on the negative side of the account. Balance of these two items are net credit or the balance of trade.
- When credit items are less than the debit items, then it shows deficit in current account i.e. net outflow of foreign exchange.
- Accordingly, the cancellation of coal block by Supreme Court will affect the current account marginally. There will be an additional burden of $700million due to additional import of coals into India.
- When payment for import increases, the debit items will be more than the credit items, then it shows deficit in current account.
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