Current account deficit: The current account deficit (CAD) measures the difference between imports and exports (of goods and services). A high CAD in the balance of payments is harmful for a country because it stunts growth.
According to the Reserve Bank of India, a CAD of 2.5 per cent of the gross domestic product is ideal. India posted its second highest ever monthly trade deficit of $20 billion in January as imports surged to record highs. The CAD hit an all-time high of 5.4 per cent of gross domestic product in the July-September quarter due to slowing exports and heavy oil and gold imports.
India will have to pursue domestic policy initiatives to help achieve any near-term improvement in current account deficit as global growth may only be slightly better in 2013 and commodity prices are unlikely to ease sharply, Moody's Investor Service has said.